RBNZ cut interest rates today for the first time in 4 years whilst leaving the door open to further cuts, signallising the beginning of an easing cycle, to send NZD lower across the board
Summary of Greame Wheeler's statement
- The fall in export commodity prices that began in mid-2014 is proving more pronounced.
- The outlook for dairy prices and recent rises in petrol prices will slow income and demand growth and increase risk delaying return of inflation to the mid-point
- Inflation has been low due to falling import prices and the strong growth in the economy’s supply potential
- Wage inflation and inflation expectations have been subdued
- Exchange rate has declined from its recent peak in April, but remains overvalued
- A further significant downward adjustment [for the exchange rate] is justified
- Lower exchange rate required in light of lower forecast for current account balance
- Increased supply required to address rising Auckland house prices
- We expect further easing may be appropriate. This will depend on the emerging data
In April's statement they stated that "Monetary policy will focus on the medium-term trend in inflation and "The timing of future adjustments in the OCR will depend on how inflationary pressures evolve in both the non-traded and traded sectors". The two charts above pretty much sum up why RBNZ cut by 25 bps today, as medium term trends of both non-tradeables and tradeable, along with projected inflation are both declining.
Whilst I did not expect a cut today it is goods to see a Central Bank try to get ahead of the curve. Now back to the RBA...