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Today Reserve Bank of New Zealand (RBNZ) will announce its monetary policy around 21:00 GMT.
Economic condition –
- New Zealand’s economy overall remained robust throughout the crisis of 2008/09 however, the $200 billion economy has started facing headwinds as China slows and commodities sag.
- Dairy and other soft commodities have risen recently from their year-long slump. However latest trade balance report showed not only revenue from dairy export slipped but volume has dropped too. In March trade balance was just $117 million.
- GDP growth has slowed to 2.5% y/y and 0.9% on quarterly basis. Unemployment rate has dropped sharply in recent months and currently at 5.3%, which is lowest since 2008/09 crisis.
- Last year trade deficit averaged around -$1 billion per month, weakest ever.
- Debt level is sustainable at close to 30.4% of GDP.
- Current account deterioration improved marginally recently but still at -3.1% of GDP. In last three quarters of 2015, current account deficit was more than -$8.5 billion.
- Inflation remained subdued and grew only by 0.4% in first quarter of 2016, after averaging above 1.5% in 2014.
RBNZ stance –
- RBNZ has lowered interest rates from 3.5% to 2.25%, however it is still the highest among developed world.
- RBNZ has hinted that it stands ready to take further action, which would be reduction in policy rates. It reduced rates in its March meeting
- Monetary policy showed RBNZ concerned over real estate sector, where prices are rising sharply and lower rates might further push it up.
Expectation and impact –
- No rate cut is expected today, so wordings in the monetary policy statement and press conference would be crucial. Key to watch would be to see, whether RBNZ is worried over recent appreciation of Kiwi.
- A strong indication of a rate cut today would lead to heavy fall in Kiwi, since such isn’t expected much. Main focus will be on statement for further cues.
New Zealand Dollar is hovering at key psychological level of 0.7 against Dollar.
