Summary:
- RBNZ’s June monetary policy meeting saw no changes to the OCR, which remains steady at 1.75%
- RBNZ leaves forecasts unchanged from the May policy meeting
- Expects further cooling in home prices
- Inflation expected to remain soft on weaker energy prices
- Notes that a weaker exchange rate could help to rebalance growth
- RBNZ maintains OCR to remain unchanged until late 2019
The Reserve Bank of New Zealand met for its monetary policy meeting late yesterday. As widely expected, the central bank left the key interest rates unchanged at 1.75% and did not make any major changes to its monetary policy statement.
In its statement, the RBNZ said that its current policy would remain accommodative for a “considerable period” suggesting that the officials were not thinking about hiking interest rates anytime soon.
The statement also cited “significant uncertainties” in the global outlook and said that this could trigger a policy response from the central bank.
In its rate forecast, the RBNZ maintained that interest rates or the Official Cash Rate (OCR) would remain unchanged until late 2019.
The central bank deferred from making any changes to its economic assessment from the May policy meeting. In other words, the central bank maintained its positive outlook on the New Zealand economy.
This was slightly surprising considering that the March quarter GDP was lower than even the RBNZ’s forecasts.
Gross domestic product in New Zealand expanded at a pace of 0.5% in the quarter ending March. The RBNZ projected the GDP growth at 0.9% instead.
The central bank said that despite the weakness in the GDP, the growth outlook was positive. It maintained that with the economy supported by accommodative monetary policy and the recent changes to the national budget, growth would return.
The New Zealand dollar rallied after the RBNZ’s statement which also touched upon the exchange rate. The central bank said that the recent gains in the exchange rate came on account of higher commodity prices.
However, officials noted that a lower exchange rate would help in rebalancing growth.
The typical jawboning of the New Zealand dollar’s exchange rate was missing, which led to the kiwi dollar strengthening as a result.
No major changes were made to the inflation forecasts either while the central bank expects the slowdown in the housing markets to continue. It expects that home prices in New Zealand will continue to fall.
RBNZ expects inflation to remain soft
New Zealand’s inflation is currently at 2% approximately, but the RBNZ has brushed aside this increase in inflation calling it due to “temporary factors.”
The central bank said that the long-term inflation expectations remain anchored at 2%, the mid-band for the RBNZ’s inflation targeting mandate.
Inflation across many major economies in the world has been easing over the past month on account of falling oil prices.
Policy makers are seen taking a similar stance as far as inflation is concerned. Officials from the US Federal Reserve and the ECB are maintaining a close watch on inflation which briefly rose in the early part of this year only to falling back into the second quarter.
Crude oil prices continued to fall yesterday with another massive supply glut expected. This comes despite the May OPEC meeting where officials extended the production cuts.
On Tuesday, oil prices fell 2.2% and down approximately 22% from the highs formed in early January.
Amid the political developments, another factor contributing to the oil prices declines is that the OPEC-led production cuts could be offset by the US shale oil industry leaving the markets as they were.
