HSBC economists, project that the Reserve Bank of New Zealand (RBNZ), that yesterday left the key cash rate unchanged at 1.75%, will remain on hold throughout 2017 before raising rate during the first quarter of 2018.
Key Quotes:
“Despite stronger near-term inflation (mostly due to petrol prices), the RBNZ’s medium-term inflation forecasts remain low. The central bank is not expecting CPI inflation to get to its 'near 2%' target until Q2 2019 – two quarters later than previously forecast. With such a benign inflation outlook, it is no surprise that the central bank also noted that 'monetary policy will remain accommodative for a considerable period’.”
“The RBNZ projects the next move in the cash rate will be up, but not until the end of the forecast period in late 2019/early 2020. We see upside risks to the RBNZ’s inflation forecasts, although underlying inflation is likely to only gradually edge higher towards 2% over 2017. We expect the RBNZ to remain on hold throughout 2017, before beginning to gradually lift rates in Q1 2018.”
“Strategically, it makes sense for the RBNZ to project a more dovish message than the market was expecting, in order to encourage the NZD to fall. It also makes sense to downplay the current sharp lift in y-o-y headline inflation that is being driven by petrol prices.”
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