19 February, 2019
The Reserve bank of New Zealand held its monetary policy meeting last week. In its first policy review of 2019, the central bank left the OCR unchanged at 1.75% as widely expected.
“The Official Cash Rate (OCR) remains at 1.75 percent. We expect to keep the OCR at this level through 2019 and 2020. The direction of our next OCR move could be up or down,” the RBNZ’s statement said.
The central bank’s message was seen by the markets to be somewhat dovish but offsetting the dovish language was some upbeat and optimistic views on the economy. The central bank focused on the impact of capital requirements by banks on the OCR rate as being only transitory. It ruled out that the capital requirements would affect the neutral interest rate.
The overall tone of the meeting suggested that the RBNZ did not surprise the markets and the statements were broadly in line with expectations. This also increases the view that the general outlook remains neutral for the remainder of this year.
The central bank projected its OCR to be about 20 basis points lower than its previous forecast. While the central bank said that it sees no change to the OCR at the current levels until 2020, the next move could be a rate hike or a rate cut (depending on assessing the incoming economic data).
Details on the monetary policy statement was a bit less dovish than expected. The central bank focused its concerns around the global economy just like most other central banks.
Citing the external factors as risks, the RBNZ, however, remained positive on New Zealand’s growth outlook. It emphasized the importance of the tightening labor market and the emerging capacity pressures.
“Despite the weaker global impetus, we expect low-interest rates and government spending to support a pick-up in New Zealand’s GDP growth over 2019. Low-interest rates and continued employment growth should support household spending and business investment. Government spending on infrastructure and housing also supports domestic demand,” the statement said.
The central bank gave the view that it remained optimistic that growth will pick up in the coming quarters. This should come amid government spending likely to push growth and thus help inflation to rise closer to its mid-rate of the inflation target band.
Economists were however quick to point out that the RBNZ’s view was mostly neutral due to the analysis being out of date.
The RBNZ’s Monetary policy statement included the forecast of the December quarter’s GDP growth at 0.8%. However, this would mean that the information did not include the quarterly employment surveywhich came out weaker than expected.
As a result, economists quickly pointed out that the MPS does not reflect the latest developments in the economy. There is a consensus that the fourth quarter GDP grew just by 0.3%.
The central bank also did not make any revisions despite Statistics NZ revising the estimates on the net migration.
As a result, it is highly likely that the RBNZ’s assessment of the economy will be softer than at the currency meeting as the data will then incorporate the December GDP numbers and also adjust for the employment report as well.
The RBNZ did not make any references to the exchange rate of the NZD.
The next policy meeting from the RBNZ is likely to see the central bank take a more dovish stance. The medium-term inflation expectations showed an unchanged print of 2%.
Following the RBNZ’s meeting, the New Zealand dollar posted strong gains. The currency gained over 1.68% immediately after the RBNZ released its statement.
The US dollar, which was trading subdued the past few days held steady ahead of the FOMC meeting today. The Fed will be releasing its economic...
A number of ongoing global narratives kept a lid on the markets with USD trading subdued ahead of major events this week. These include the two-day...
Economic reports from the UK showed that the GDP rose 0.2% in the three months to January. On a quarterly basis, the economy picked up the pace, rising 0.5%...
The latest business surveys, measuring activity in the manufacturing and services sector for the eurozone painted a mixed picture. The overall...
The U.S. dollar weakened on Friday amid the jobs report which dented the market sentiment which was already turning sour. Concerns of a global...
The U.S. Federal Reserve released the meeting minutes from the monetary policy meeting from early January. The central bank's minutes showed...
The Swedish central bank held its monetary policy meeting last week where it left the key interest rates unchanged at -0.25 percent. The central bank...
The yellow metal has exploded higher over the last 12 hours as a combination of factors joined forces to fuel a surge in demand. Firstly, there is increased...
Britain economic growth slowed sharply in the fourth quarter of 2018. The yearly growth was the slowest in six years, as Brexit worries...