Originally published by AxiTrader
The Reserve Bank of New Zealand (RBNZ) has cut its OCR (official cash rate) by 25 bps to 1.75 %, as expected by the market. Here are the highlights from the monetary policy statement:
- Global inflation remains weak even though commodity prices have come off their lows
- Political uncertainty remains heightened and market volatility is elevated.
- Weak global conditions and low interest rates keeping upward pressure on the New Zealand dollar
- A decline in the exchange rate is needed
- Domestic growth is being supported by strong population growth, construction activity, tourism, and accommodative monetary policy
- Recent dairy auctions have been positive, but uncertainty remains around future outcomes
- House price inflation remains excessive and is posing concerns for financial stability
- Monetary policy will continue to be accommodative
- Current projections and assumptions indicate that policy settings, including today’s easing, will see growth strong enough to have inflation settle near the middle of the target range
- Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly
The central bank is expecting a quarter-on-quarter GDP growth of 0.9 % for Q3 and 1.0 % for Q4. The forecasts for the year-on-year numbers are 3.7 % for Q3 and 3.8 % for Q4.
For the average OCR, the RBNZ predicts it to be at 1.8 % in Q1 of next year and at 1.7 by end of 2017. Regarding inflation, the RBNZ expects headline CPI to be at 1.7 % by end of next year, and to reach 2 % in late 2018.
Overall, the RBNZ has maintained its dovish tone, and noted that further easing may be required + that a decline in the exchange rate is needed.
The reaction in the Kiwi Dollar has been mixed so far. It rose from 0.7275 to 0.7365 immediately after the release, as some market participants seem to have expected an even more dovish monetary policy statement. However, it is currently giving up some of the earlier gains.
Traders are now waiting for the RBNZ press conference, which will start at 21:00 GMT (08:00 Sydney time).