Posted on March 12, 2015 by the XM Investment Research Desk at 1:04 pm GMT
The regular meeting of the Reserve Bank of New Zealand (RBNZ) resulted in a no-change decision, which kept the Official Cash Rate (OCR) at a relatively high 3.50%. Although the decision itself was widely expected, the RBNZ Governor Graeme Wheeler signaled that the bank was in “neutral” mode – just as likely to increase or to reduce rates according to economic developments. This was similar language to the one used in January’s policy decision statement and did not signify any increased willingness to cut rates.
Some analysts were arguing that the RBNZ would adopt a more dovish tone – particularly with inflation forecast to fall to around zero in March and remain low this year – phrases that the bank itself used in talking about price developments. The bank has also warned that if lower inflation expectations start to affect price- and wage-setting behavior, it could act.
The RBNZ appeared confident about domestic growth on the other hand, as there was optimism about consumers given the drop in fuel prices, a strong employment picture and healthy housing and construction sectors. Growth should be above 3% in 2015 according the bank’s Governor; an extremely high growth rate for a developed nation. On the negative side, drought conditions, fiscal consolidation, lower dairy prices and a high exchange rate were problems.
On the issue of the exchange rate, the bank expressed a strong view that it was overvalued and that it should drop. A correction in the exchange rate would help the New Zealand external sector (imports and exports) to rebalance.
To sum up, there were no signs that the RBNZ was in any hurry to reduce rates from the monetary policy decision and the press conference of Governor Graeme Wheeler. The bank was in a wait-and-see mode and it did not appear willing to follow the lead of other commodity-producing economies who cut their rates in recent months such as Australia and Canada. The kiwi jumped against the US dollar, rising from around 0.7190 to top the 73 cents level.