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RBNZ maintains OCR unchanged at 3.5%; rates 'up or down' to be data dependent

FXStreet (San Francisco) - The Reserve Bank decided to leave the Official Cash Rate unchanged at 3.5% according to a press release published recently.

The bank expects that the trading partner path in 2015 will be similar to 2014 "with growth in China, Japan and the euro area easing in recent quarters, while growth in the US has remained robust."

As main theme, the RBNZ affirmed that further changes in the interest rate will be data dependent as the Bank expects "to keep the OCR on hold for some time. Future interest rate adjustments, either up or down, will depend on the emerging flow of economic data."

The NZD/USD reacted to the downside and it's falling to 0.7360, low since March 2011. However the bak affirmed that they "expect to see a further significant depreciation" in the New Zealand dollar.

Key quotes:

World oil prices have fallen 60 percent since June last year, which will boost spending power in oil importing economies but reduce incomes for oil exporters.

The lower oil price will have a significant impact on prices and activity in New Zealand. The most direct and immediate effects are through fuel prices, with the price of regular petrol falling from a national average of $2.23 in mid-2014 to $1.73 currently.

Annual economic growth in New Zealand is above 3 percent, supported by rising construction activity and household incomes. The housing market is showing signs of picking up, particularly in Auckland.

Fiscal consolidation, the reduced dairy payout, the risk of drought, and the high exchange rate will weigh on growth.

While the New Zealand dollar has eased recently, we believe the exchange rate remains unjustified in terms of current economic conditions, particularly export prices, and unsustainable in terms of New Zealand’s long-term economic fundamentals. We expect to see a further significant depreciation.

Author

Mauricio Carrillo

Mauricio Carrillo is a financial journalist, fintech executive, and inter-markets analyst with fifteen years of experience at the intersection of traditional finance and digital asset infrastructure.

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