Breaking: Reserve Bank of New Zealand keeps rates on hold at 1.50%, NZD drops and pops

At its June monetary policy meeting on Wednesday, New Zealand’s central bank, the Reserve Bank of New Zealand (RBNZ) maintained its Official Cash Rate (OCR) at historic lows of 1.50%, as widely expected.

“All forecasters in the Bloomberg survey look for no change at 1.5%, while money markets price a 20% chance of a 25bp rate cut,” Analysts at Westpac noted.

The Kiwi quickly slipped to lows at 0.6615 before recovering sharply above the midpoint of the 0.66 handle. 

Minutes of the meetings:

“Outlook for the economy has softened relative to the projections in the May 2019 Statement.

Inflation remains slightly below the mid-point.

Employment is broadly at its maximum sustainable level.

The Committee agreed that a lower OCR may be needed to meet its objectives, given further deterioration in the outlook for trading-partner growth and subdued domestic growth.

Relative to the May Statement, the Committee agreed that the risks to achieving its consumer price inflation and maximum sustainable employment objectives are tilted to the downside.

Global economic growth had continued to slow.

Ongoing weakening in global trade activity.

 A drawn out period of tension could continue to suppress global business confidence and reduce growth.

Members noted in particular the dampening effect of uncertainty on business investment.

Some members noted that lower commodity prices and upward pressure on the New Zealand dollar could see imported inflation remain soft.

Domestic GDP growth had held up more than projected in the March 2019 quarter.

Construction strong and services weak.

Two largely offsetting developments affecting the outlook for domestic growth: softer house price inflation and additional fiscal stimulus.

Continuing absence of wage pressure could indicate that there is still spare capacity in the labour mark.

The members agreed that more support from monetary policy was likely to be necessary. The Committee discussed the merits of lowering the OCR at this meeting. However, the Committee reached a consensus to hold the OCR at 1.5 percent. They noted a lower OCR may be needed over time.”

About RBNZ Interest Rate Decision

RBNZ Interest Rate Decision is announced by the Reserve Bank of New Zealand. If the RBNZ is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the NZD.