RBNZ Keeps Rates Unchanged - Nomura

RBNZ Keeps Rates Unchanged - Nomura

28 April 2016, 07:46
Roberto Jacobs
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RBNZ Keeps Rates Unchanged - Nomura

Charles St-Arnaud, Research Analyst at Nomura, suggests that the continued weakness in the inflation outlook forced the RBNZ to leave the door open for a cut in June.

Key Quotes

“The RBNZ kept its policy rate unchanged at 2.25%, against our expectations, but maintained a dovish policy stance, stating that “further policy easing may be required to ensure that future average inflation settles near the middle of the target range”.

The RBNZ reiterated that that the outlook for the global economy has deteriorated, but observed that “monetary conditions are extremely accommodative internationally”. Moreover, the central bank continues to view the “the prospects for global growth, particularly around China, and the outlook for global financial markets” as a significant downside risks to the outlook.

On inflation, the RBNZ said “headline inflation remains low, mostly due to low fuel and other import prices” and noted that “there has been a material decline in shorter-term expectations”.

On the exchange rate, the RBNZ continues to view the current level of the NZD as elevated, stating that “the exchange rate remains higher than appropriate given New Zealand’s low commodity export prices. A lower New Zealand dollar is desirable to boost tradables inflation and assist the tradables sector”. The second part of the quotation suggests that the outlook for inflation is weaker because of the strength of the currency.

Overall, the statement continues to suggest that the RBNZ is likely to cut rates in the near future because of the deterioration in inflation expectations, the strong NZD and deterioration in the global outlook. Moreover, it is also evident that in the RBNZ views most of the risks to the outlook as being to the downside. With all this in mind, we think it looks very likely that the RBNZ will cut rates. The timing will depend on incoming data— particularly inflation expectations, the level of the exchange rate and dairy prices—but we believe a cut at the June meeting looks likely.”


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