New Zealand Falls After a Dovish Statement From RBNZ
June 28, 2018 8:41 am
The Reserve Bank of New Zealand (RBNZ) released their June interest rate decision today. The decision led the Kiwi to fall as shown below.
In the decision, the officials left interest rates unchanged at 1.75%. This was expected of course. The last time the officials made a major iteration to the interest rates was in November 2016 when they brought rates to the current levels. Previously, they were lowering interest rates from 3.50% in April 2015.
While the decision from the RBNZ was expected, what was not expected was their dovish statement. In the accompanying statement, the officials said:
‘Our outlook for the New Zealand economy, as detailed in the May Monetary Policy Statement, remains intact. Employment is around its sustainable level and consumer price inflation remains below the 2 percent mid-point of our target, necessitating continued supportive monetary policy for some time to come.’
They then said:
‘The best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period.’
In other words, the officials committed themselves to a more conservative approach to monetary policy decisions. This means that they will likely leave rates unchanged for the next foreseeable future. And, when they make their next interest rates decision, it will likely be to the lower side. This means that the earliest the officials could make a hawkish rate decision will likely be in the fourth quarter of 2019.
In the recent weeks, the data from New Zealand has not been good. In early May, the country released employment numbers that showed a lower unemployment rate but a lower participation rate. In addition, the rate of inflation has remained below the 2% which means that the RBNZ officials will need a more supportive policy. As shown below, the year-on-year inflation rate has been falling this year and is currently at the lowest level since January last year.
As you recall, the role of the central bank is to ensure that the rate of inflation is contained. A rate hike at a time when the rate of inflation is low is not ideal. This is because with rate hikes being high, more people and companies will shun borrowing. As a result, the country would risk going through a process of deflation.
In May, the officials released the monetary policy statement where they eased the annual CPI to 1.1 percent in March this year with the core CPI at 1.5 percent. In the medium-term, the central bank set the inflation target at between one percent and 3 percent. The risks they highlighted in the statement was on the trade issues, tighter financial conditions, and the continued low case of inflation.
The Reserve Bank of New Zealand (RBNZ) released their June interest rate decision today. The decision led the Kiwi to fall as shown below.
In the decision, the officials left interest rates unchanged at 1.75%. This was expected of course. The last time the officials made a major iteration to the interest rates was in November 2016 when they brought rates to the current levels. Previously, they were lowering interest rates from 3.50% in April 2015.
While the decision from the RBNZ was expected, what was not expected was their dovish statement. In the accompanying statement, the officials said:
They then said:
In other words, the officials committed themselves to a more conservative approach to monetary policy decisions. This means that they will likely leave rates unchanged for the next foreseeable future. And, when they make their next interest rates decision, it will likely be to the lower side. This means that the earliest the officials could make a hawkish rate decision will likely be in the fourth quarter of 2019.
In the recent weeks, the data from New Zealand has not been good. In early May, the country released employment numbers that showed a lower unemployment rate but a lower participation rate. In addition, the rate of inflation has remained below the 2% which means that the RBNZ officials will need a more supportive policy. As shown below, the year-on-year inflation rate has been falling this year and is currently at the lowest level since January last year.
As you recall, the role of the central bank is to ensure that the rate of inflation is contained. A rate hike at a time when the rate of inflation is low is not ideal. This is because with rate hikes being high, more people and companies will shun borrowing. As a result, the country would risk going through a process of deflation.
In May, the officials released the monetary policy statement where they eased the annual CPI to 1.1 percent in March this year with the core CPI at 1.5 percent. In the medium-term, the central bank set the inflation target at between one percent and 3 percent. The risks they highlighted in the statement was on the trade issues, tighter financial conditions, and the continued low case of inflation.
The post New Zealand Falls After a Dovish Statement From RBNZ appeared first on Forex.Info.
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