RBNZ Left Policy Stance Unchanged, Heightened Warning Over NZD Strength
|As expected, the RBNZ left the OCR unchanged at 1.75%. Governor Wheeler reiterated that the monetary policy would remain accommodative for some time. The staff projection continued to forecast the first rate hike to come in 2H19. They also revised lower the short term inflation outlook and intensified the warning that a lower currency is needed for growth. NZDUSD jumped to a 3-day high of 0.7371 after the announcement, but gains were erased afterwards.
The central bank's monetary policy stance remained neutral. As noted in the accompanying statement, 'monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly'. It continued to project the first rate hike to come in the second half of 2019, unchanged from the assessment in May.
On the macroeconomic developments, RBNZ acknowledged that recent GDP growth came in weaker than expected, while housing prices moderated and inflation softened. Yet, it affirmed growth would pick up, thanks to growing population, elevated terms of trade and fiscal stimulus. It forecast growth to stay above 3% in coming years. Policymakers noted that the 'outlook for tradable inflation remains weak', while 'non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term. The central bank's longer-term inflation expectations stayed at around 2%.
There is a tweak in the currency reference, where the RBNZ suggested that 'a lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth'. Previously, the central bank noted that a drop in New Zealand dollar would 'help to rebalance the growth outlook towards the tradables sector'
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.