RBNZ Sets Bullish Tone; Drops Chance of Rate Cut This Year

Reserve Bank Governor Adrian Orr

The New Zealand dollar retreated today after yesterday's surge caused by the central bank's monetary policy announcement. Slower global growth over 2019 acted as a headwind to domestic growth.

Gilligan said the central banks "don't want to panic everybody" with the Australian economy starting to demonstrate a turn-around and the latest raft of New Zealand data having been on the strong side.

Signs of a less robust labor market may put pressure on the RBNZ to implement lower interest rates, and Governor Adrian Orr and Co. may continue to emphasize that the board "will add further monetary stimulus if needed" as the International Monetary Fund (IMF) trims its global growth forecast for 2020.

Ha said some of the forces supporting growth are the fact that monetary policy stimulus has kicked in after the RBNZ cut the official cash rate by 75 basis points past year to 1 per cent, house prices are lifting, and asset prices are lifting. Indeed, it forecasts one hike by late 2021. The recent statement, therefore, served to remove the prospect of a rate cut in the upcoming months.

The dire outlook for interest rates has weighed heavily on the Kiwi Dollar in the a year ago which explains why it was the best performing major currency on Wednesday.

Kiwi gains have confirmed a third successive failure by the Pound to overcome a post-referendum high that can be seen from the weekly charts, which might be a bearish technical development for the Pound-to-Kiwi rate. "There's no reason to think the NZD won't do its job, and move broadly together with our commodity prices, wherever they may head", Zollner warns. The growth rate for infections and deaths is now falling but the Chinese economy remains largely at a standstill and the outbreak is far from over.

The last time the OCR was changed was in August, when it was cut by 0.5 percentage points to one per cent - a record low.

'Most of the economic impact of coronavirus will be felt in the first quarter, and China's recovery will be firmly in place by the third quarter of this year'.
But the effect, as per the RBNZ, is likely to be broadly contained.

There are fears the virus will curb demand for New Zealand commodities, particularly in largest trading partner China where the outbreak originated.

"This is a highly fluid situation and estimated impacts are extremely uncertain", said Sharon Zollner, chief economist at ANZ Bank New Zealand in Auckland.



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