RBNZ’s PTA aims at supporting "maximum sustainable employment" in context of medium-term inflation target

The Reserve Bank of New Zealand’s (RBNZ) Policy Target Agreement (PTA), signed early Monday aims at supporting "maximum sustainable employment" in the context of its medium-term inflation target. This policy mandate is broadly in line with those in the United States and Australia.

Although policy rates (and now mandates) in these economies are currently very similar, the policy outlooks are quite different. The RBNZ does not expect to increase interest rates until 2019, whereas the FOMC increased rates last week and expects two more hikes this year. Market pricing for policy in New Zealand is similar to that in Australia, with about a 30 percent chance of a hike priced for both by year end.

"Given the similar policy outlooks for the RBA and RBNZ, we expect the NZD/AUD to keep muddling along. However, the NZD/USD will be put on the defensive in 2018. Policy rate differentials and diminishing global liquidity suggest depreciation may be only a matter of time," ANZ Research commented in its latest report.

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