RBNZ: A cautious central bank? - Rabobank

According to the Bloomberg survey, not a single forecaster is expecting the RBNZ to alter interest rates at tonight’s regular policy meeting, points out Jane Foley, Senior FX Strategist at Rabobank.

Key Quotes

“It is very likely that the same outcome will be true into the next policy meeting in September and into the end of the year.  Indeed, there has been a shift in sentiment since the start of the year.  Then the debate was centred on the timing of the first RBNZ rate hike of the cycle against a backdrop of strong global growth.”

“More recently attention is turning to the spate of weak domestic economic releases and concerns that the economy could be wobbling.  We maintain a bearish outlook on the NZD.  We look for a move towards NZD/USD0.66 into year end with downside risk.”

“New Zealand PM Ardern this week defended the position of the economy. She stated that the government was still forecasting growth at around 3%, that unemployment was low and the employment rates was the third best in the OECD.”

“The latest round of economic data, however, show a less rosy picture.”

“In spite of the PM’s optimism, Finance Minister Roberston conceded this week that the government’s official 2018 GDP growth forecast of 2.8% y/y could be revised down “a little bit”.”

“Like other commodities exports, the outlook for the Chinese economy and how it will fare under Trump‘s US trade tariffs is of clear concern.”

“At its last policy meeting in late June, the RBNZ stated that policy was “well positioned to manage change in either direction – up or down – as necessary”. It struck an optimistic tone on global growth which it “expected to support demand for our products and services” but a slightly more cautious outlook on domestic demand.  It stated that “recent weaker GDP outturn implies marginally more spare capacity in the economy than we anticipated.”

“The Government’s projected spending impulse is also slightly lower and later than anticipated”.  We would expect policymakers to tune up their note of caution at tonight’s policy meeting, which is likely to keep the pressure on USD/NZD in the coming months.”