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Reserve bank of New Zealand (RBNZ) kept monetary policy unchanged with rates at 1.75 percent.
Let’s see in the monetary policy, how the bias stands for future actions,
- The outlook for global growth continues to gradually improve. While global inflation remains subdued, there are some signs of emerging pressures. Commodity prices have continued to increase and agricultural prices are picking up. Equity markets have been strong, although volatility has increased. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory. (Neutral bias)
- GDP was weaker than expected in the fourth quarter, mainly due to weather effects on agricultural production. Growth is expected to strengthen, supported by accommodative monetary policy, a high terms of trade, government spending, and population growth. Labour market conditions are projected to tighten further. (Mild hawkish bias).
- Kiwi is higher than appropriate. Weak global conditions and lower rates relative to New Zealand are pressuring kiwi upwards. A decline in exchange rate is required. (Dovish/Weaker Kiwi bias)
- Residential construction continues to be hindered by capacity constraints. The Kiwi-build program is expected to contribute to residential investment growth from 2019. House price inflation remains moderate with restrained credit growth and weak house sales. (neutral to mild hawkish bias)
- CPI inflation is expected to weaken further in the near term due to softness in food and energy prices and adjustments to government charges. Tradables inflation is projected to remain subdued through the forecast period. Non-tradable inflation is moderate but is expected to increase in line with a rise in capacity pressure. Over the medium term, CPI inflation is forecast to trend upwards towards the midpoint of the target range. Longer-term inflation expectations are well anchored at 2 percent. (Dovish bias)
- Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly. (Dovish bias)
Compared to the previous statement, this one is dovish on balance.
The statement clearly suggests that RBNZ is in no hurry to follow other central banks such as the U.S. Federal Reserve in increasing rates. Expect no major changes even hint in H1 2018. The Kiwi dollar is currently trading at 0.723 against the USD.
