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Kiwi rally stalls but will the RBNZ risk taking another hawkish turn?


19 February 2021

The Reserve Bank of New Zealand will hold its first policy meeting of the year on Wednesday, with an announcement expected at 01:00 GMT, followed by Governor Orr’s press conference at 2:00 GMT. While other central banks have been keen to stress that they are nowhere near thinking about scaling back some of the unprecedented stimulus they’ve unleashed during the pandemic, the RBNZ was the first to formally tone down its dovish aspirations slightly back in November. Since then, economic data have only gotten better, yet the firmer US dollar is keeping a lid on the kiwi’s gains. So will policymakers attempt to walk a fine line or will they admit that negative rates are no longer on the table?

Lockdowns – the New Zealand way

New Zealand’s largest city – Auckland – has been in and out of lockdown since the pandemic struck last year. The latest, which lasted just a few days, was only lifted on Wednesday. However, it is this snap decision-making of Jacinda Ardern’s government, combined with strict travel restrictions and effective contact tracing, that has helped the country stave off prolonged shutdowns like Europe. Add to that, the stronger recovery in New Zealand’s closest trading partners in Asia (particularly China), the domestic economy has been defying gloomy predictions since the autumn.

The faster-than-expected turnaround has taken the RBNZ by surprise, acknowledging in the November meeting that the economy “has proved more resilient than earlier assumed”. The bank nevertheless pressed ahead with the launch of its Funding for Lending Programme (FLP), and together with its asset purchase programme, which has been expanded twice, the combined policies will probably be sufficient in negating the devastating effects of the pandemic on the economy.

#source

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