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Today Reserve Bank of New Zealand (RBNZ) will announce its monetary policy around 21:00 GMT. Over the past year or so, RBNZ has reduced rates from 3.5 percent to 2.25 percent, which is an all-time low, however, the bank is unlikely to stop, nor are the speculators. Yet another rate cut is expected today, as a matter of fact, it is priced in well. Still, the kiwi dollar is trading strong, though It hasn’t broken above key resistance. RBNZ needs to show resolve and determination.
RBNZ, on the other hand, is sure to be in a bit of a trouble or dilemma, especially. If it just wants to weaken the currency (main motto) which is clearly hurting the economy at this vulnerable stage, then just 25 basis points may not be enough. We, on the other hand, believe that if the central bank looks through its mandate window then things could become clearer.
- Over the past three-quarters, the inflation rate in New Zealand has averaged below 0.4 percent.
- GDP growth has been relatively small. It grew 0.7 percent in the first quarter. The unemployment rate is low at 5.2 percent but improvements may take place if GDP growth accelerates.
- Dairy farmers are suffering from costlier kiwi dollar. The trade deficit has widened.
- The biggest risk to easing is the speculations in the housing market but addressing the issue using regulations is definitely more effective than interest rate lock.
The mandate shows RBNZ has ample room to act.
New Zealand dollar is awaiting judgment at 0.724 against the dollar.
