RBNZ expected to remain “on hold” in 2020 – UOB

Lee Sue Ann, Economist at UOB Group, assessed the recent RBNZ event.

Key Quotes

“The Reserve Bank of New Zealand (RBNZ) decided to keep its official cash rate (OCR) unchanged at 1.00% at its first monetary policy meeting for the year. In its accompanying press release, the RBNZ acknowledged that ‘the COVID-19 (coronavirus) outbreak is an emerging downside risk’, but assumed that the “overall economic impact of the coronavirus outbreak in New Zealand will be of a short duration, with most of the impacts in the first half of 2020”.

“In fact, the RBNZ took on a more hawkish stance, given that the economic numbers out of New Zealand since it last met have been relatively stronger, by and large. The RBNZ’s forecasts for the OCR now suggest that, at present, it may not cut rates at all this year, unless the coronavirus outbreak has a bigger-than-expected impact on growth.”

“The RBNZ also emphasised that there was still time to cut rates to support the economy if needed at a later date. Whilst trimming its first quarter growth forecast to 0.4% from 0.7%, the RBNZ revised higher the subsequent quarters.”

We have been holding onto the minority view that the RBNZ will maintain its OCR this year. Today’s meeting certainly reinforces our view that the RBNZ is done cutting rates for now, following the cumulative 75bps rate cuts last year.”

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