RBNZ to stay on hold for some time - HSBC

"As expected, the RBNZ kept its cash rate on hold today at 1.75% and noted, once again, that monetary policy will remain accommodative 'for a considerable period'. Concerns about the level of the NZD also seem to have been reduced, with the statement noting that the trade-weighted exchange rate index had 'eased slightly', although the central bank still stated that a lower NZD 'would help' increase inflation and 'deliver more balanced growth'," explains Paul Bloxham, Chief Economist, Australia, NZ & Global Commodities at HSBC.

Key quotes:

"The New Zealand economy is growing at around its trend rate, CPI inflation is back in the target band, the NZD has fallen a little recently, and after a housing price boom, conditions in the housing market have cooled, at least for now. The RBNZ had little to worry about this month and this was reflected in the terse and perfunctory post-meeting statement. The statement was similar to the previous one, with the most obvious change being the shift from stating that a lower currency would be 'needed' to suggesting it 'would help' to lift inflation and deliver more balanced growth."

"We agree that there is little reason to consider changing the stance of policy for the moment and expect the RBNZ to be on hold for some time yet. However, do expect that the next move will be up. We are forecasting growth to pick up from 2.8% in 2017 to 3.3% in 2018, supported by strong tourism numbers, a recovery in the dairy sector and a pick-up in construction. We also expect that, whichever party forms government, following last weekend's election, fiscal spending is likely to be boosted."

"At the same time that we expect demand growth to pick-up, we also see labour supply being curtailed as inward migration slows in coming quarters. Slower inward migration is expected to reflect post-election policy changes as well as the improving Australian labour market, meaning fewer trans-Tasman arrivals and some more departures. An expected pullback in labour supply is expected to see a modest rise in wages growth, supporting inflation and motivating the RBNZ to lift rates later in 2018."