RBNZ Monetary Policy: Assessing Future Bias

RBNZ Monetary Policy: Assessing Future Bias

9 June 2016, 14:00
Roberto Jacobs

RBNZ Monetary Policy: Assessing Future Bias

Reserve bank of New Zealand (RBNZ) has maintained current overnight cash rate at 2.25%.

It is vital to see how the bias stands to assess future actions –

  • Global growth stabilized and financial market volatility abated. However, RBNZ notes that global growth is below average and inflation is low, despite highly stimulatory monetary policies. Still significant downside risks. (Mild dovish bias)
  • Domestic activity supported by immigration, construction, tourism and accommodative monetary policies. Dairy export prices below break-even. (Neutral).
  • Kiwi is higher than appropriate. Weaker Kiwi helps inflation in tradable. (Dovish/Weaker Kiwi bias)
  • House price inflation in Auckland, financially destabilizing. Further supply required (neutral to mild hawkish)
  • Uncertainty in outlook which relates to global growth and commodity prices. Domestic concerns are high net migration, housing prices, and lower inflation expectations. (Mild Dovish)
  • Headline inflation low due to fuel and import prices but long-term inflation expectations well anchored and short term stabilized. (Neutral)
  • Inflation likely to strengthen thanks to the rise in commodities price, accommodative monetary policies and expected depreciation of Kiwi.

Compared to the previous statement, this one is much more Neutral. Dovish bias has evaporated a lot, which is a signal that RBNZ may go for a pause before cutting rates further.

That explains Kiwi’s jump. Kiwi is currently trading at 0.71 against Dollar.

So, with such explicit indications, RBNZ is likely to stay put for next six months at least or more.

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