RBNZ Likely to Stay Pat at Record Low

RBNZ Likely to Stay Pat at Record Low

8 June 2016, 15:13
Roberto Jacobs
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RBNZ Likely to Stay Pat at Record Low

The Reserve Bank of New Zealand is likely to keep policy rates at record low at its monetary policy meeting scheduled on June 8 at 21:00 GMT. The central bank is expected to leave the Official Cash Rate at its record low of 2.25 percent.

According to 23 economists polled by Reuters, 14 expect the central bank to stay pat, while nine are looking forward to a cut of 25 basis points to 2.00 percent this week, although a majority of those surveyed expect a cut by the end of H1 2016. However, Bloomberg poll shows a likely rate cut at this meeting.

Meanwhile, stabilizing oil prices, coupled with a bust in housing demand in Auckland, give enough reasons for the central bank to keep the rates unchanged.

The Q4 unemployment rate fell to 5.3 percent, the lowest since March 2009 from 6.2 percent in the previous quarter. Q4 gross domestic product also rose 0.9 percent q/q and 2.3 percent y/y. The Q1 consumer price index-led inflation rate rose to 0.4 percent y/y from 0.1 percent previously.

Further, dairy giant Fonterra's Global Dairy Trade price index rallied for the third straight period to 3.4 percent, marking the second consecutive gain in the eight Global Dairy Trade auctions held so far in 2016. Five out of the past six auctions have seen an increase in prices.

Further, latest releases by the RBNZ Governor Wheeler signaled a pause mode, while expressing optimism over declining oil prices. Prices are, however, expected to recover by the end of 2016 and therefore, a rate cut cannot be completely ruled out given that the domestic currency is trading with an upward bias against its major trading partners.

We foresee a rate cut in September this year if oil prices recover amid less possible fall in global dairy prices. The upcoming policy meet shall be accompanied by the release of the RBNZ's Monetary Policy Statement (MPS).

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