RBNZ monetary policy preview

Today Reserve Bank of New Zealand (RBNZ) will announce after meeting monetary policy decisions at 21:00 GMT.

Economic condition -

• New Zealand's economy overall remained robust throughout past years however as of recent facing headwinds due to slow down in China and Europe, two of its major importer.
  
  
• Dairy prices slumped by another 10% in last auction, and prices are down more than 60% in last one year.
                         
• GDP growth has slowed to 2.6% y/y and 0.2% on quarterly basis Unemployment still low at 5.8% but grew from recent 5.4%.
  
  
• As per latest survey, confidence among businesses have deteriorated substantially along with inflation expectation which has hit new record low.
  
  
• Debt level is sustainable at close to 36% of GDP.
  
  
• Current account has deteriorated to -3.3% of GDP.
  
  
• Inflation remained subdued and grew only by 0.30% after averaging above 1.5% last year.

RBNZ stance -

• RBNZ lowered interest rates in last policy meeting by 25 basis points to 3.25%, still highest among developed world.

• RBNZ has hinted that it stands ready to take further action, which would be reduction in policy rates.

Expectation and impact -

• After RBNZ comments this year, expectation is high that RBNZ will provide another 25 basis points rate cut today.
  
  
• Kiwi would see heavy appreciation if RBNZ keeps policy steady in today's meeting.
  
  
• Kiwi is currently trading at 0.661 against dollar, due to overall weakness in Dollar.
  
  
• In spite of expectations RBNZ might keep rates steady today and might wait until the next meeting as it might like to gauge impact of previous rate cut and drop in Kiwi.
  
  
• Kiwi has taken support of Key area at 0.65 against dollar. It might go down if rate cut arrives but take support around 0.65, on the other hand it might appreciate if no rate cut is announced. However any moves beyond initial price action would depend on RBNZ communications.