RBNZ to keep rates unchanged

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The Reserve bank of New Zealand will be holding its monetary policy meeting this week. The central bank is expected to leave interest rates unchanged. The official cash rate remains at 1.75%.

Despite an uptick in recent economic data, the RBNZ is expected to take a cautious approach in light of recent worsening of sentiment in the economy.

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New Zealand, current account deficit, falls in Q2, 2018

On a seasonally adjusted basis, New Zealand’s current account deficit fell to NZD 2.7 billion for the quarter ending June.

The official data released by Statistics New Zealand showed on Wednesday last week. June quarter’s decline in the deficit was a difference of NZD 494 million compared to the previous quarter ending March 2018.

The decline in the current account deficit came on the back of rising exports made up of goods and services. The total value of goods exports increased NZD 171 million from the previous quarter.

The services sector exports were valued at NZD 284 million. Dairy products and meat exports were some of the goods that were behind the increase in exports.

On an annual basis, New Zealand’s current account deficit increased to NZD 9.5 billion for the year ending June 2018. This was about 3.3% of the GDP and up from NZD 7.1 billion deficit posted in the previous year ending June 2017. Back then the annual current account deficit was seen at 2.6%.

new zealand gdp

New Zealand GDP advances in Q2, 2018

Later in the week, the quarterly GDP data was released. Official data showed that New Zealand’s gross domestic product advanced 1.0% in the three months ending June 2018.

This was the most substantial rise the GDP in a quarter in two years. The data beat expectations of a 0.8% increase. As a result, the New Zealand dollar briefly bounced on the solid GDP numbers.

The data is expected to bring some cheer to the officials as the economy is plagued with low business confidence in the past several months.

According to data from Statistics New Zealand, 15 out of the 16 industries had recorded higher production. The mining sector was the only industry that posted a decline. The sector fell as much as 20% which marked a significant decrease in the industry in nearly 29 years.

Statistics New Zealand said that the declines came due to a planned outage at a natural gas field after a leakage was discovered in March.

On the other extreme, the agriculture sector posted the most significant increase, rising 4.2%. Growth in the agriculture sector was supported by improvement in the forest sector, according to Statistics NZ report.

RBNZ to stay on the sidelines

The GDP data was better than expected. The RBNZ had forecast a 0.5% growth for the period. However, some economists are doubtful on whether the current growth rate could be maintained.

The doubts come as the figures for June don’t accurately reflect the more recent developments in the economy. Consumer confidence was seen declining along with various indicators in the business sector.

As a result, the RBNZ is expected to wait for more data to assess the economy. New Zealand’s GDP per capita was seen rising just 0.7% for the year. This was a significantly lower figure compared to 1.6% GDP per capita average since 2012.

The Reserve Bank of New Zealand was also seen expressing its concern about the pessimistic outlook in businesses. Business optimism hit the worst level in a decade as the New Zealand government pushes ahead with policies to reduce inequality and carbon emissions.

At the monetary policy meeting in August, the RBNZ Governor, Adrian Orr signaled that the central bank could consider a rate cut if the gloomy outlook continued to worsen.

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