Reserve Bank of New Zealand (RBNZ) announced monetary policy last night and kept its key overnight cash rate unchanged at 1.75%.

Let’s look at the policy statement details to assess the bias –

• According to RBNZ policymakers, commodity prices, more positive business and consumer sentiment lifted global economic outlook but uncertainties remain due to surplus capacity and rising geo-political uncertainty. (Mild hawkish bias)
• It notes recent rise in both short-term and long-term inflation, largely due to a rise in commodity prices. The central bank feels that the monetary policy would remain accommodative but less so. (Neutral bias)
• New Zealand dollar has risen with a firming of long-term interest rate. Kiwi dollar is stronger than sustainable for growth and dampens inflation. Exchange rate needs to be lower. (Dovish bias)
• Domestic growth being supported by ongoing accommodative monetary policy, strong population growth, increased household spending, and rising construction activity. (Neutral bias)
• Dairy price recovered but future uncertainty remains. (Neutral bias)
• RBNZ welcomed the recent moderation in house prices but uncertain because the supply/demand mismatch remains. (Mild dovish bias)
• Headline inflation returned within targeted range. Longer-term expectations well anchored. Expects inflation to strengthen, due to lesser impact of low oil price and stronger domestic economy. (Mild hawkish bias)
• Monetary policy will remain accommodative for a considerable period.  Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly. (Mild dovish).

While the monetary policy statement has tilted towards being hawkish but strong dovish statements still make it largely dovish. With this statement, we expect a long pause from the RBNZ, unless the current global outlook changes materially, in terms of trade, commodity prices, and political uncertainties.

Strong statements with regard to exchange rate have pushed the kiwi dollar down, which is currently trades at 0.722 against the US dollar.