New Zealand holds rate, time to adjust if coronavirus hits

     New Zealand's central bank left its policy rate steady, saying it assumes the economic impact of the coronavirus outbreak will be of short duration, but if the impact turns out to be larger and more persistent "monetary policy has time to adjust if needed as more information becomes available."
     The Reserve Bank of New Zealand (RBNZ) left its Official Cash Rate (OCR) at a record low of 1.0 percent, unchanged since August last year.
     In 2019 it cut the rate twice by a total of 75 basis points, starting in May when it became the first central bank among developed economies to slash its interest rate and provide a dose of monetary stimulus in response to slowing global growth, hit by uncertainty amid trade conflicts.
     Since the second rate cut in August 2019, RBNZ has kept the rate steady, saying it would remain at a low level for a prolonged period and it would add further monetary stimulus if needed to achieve its inflation and employment objectives.
     In today's policy statement, RBNZ's monetary policy committee dropped the earlier reference to adding further stimulus if needed, noting additional fiscal stimulus is helping reduce the burden on monetary policy and economic growth is expected to accelerate over the second half of 2020.
    In December New Zealand's government announced an investment package of $12 billion, or around 4 percent of gross domestic product, with some $8 billion to be spent between June 2022 and June 2024, mainly on infrastructure.
     However, policy makers still agreed low interest rates were needed to keep inflation and employment close to the targets and the outbreak of the coronavirus in China is "an emerging downside risk."
     At this point, RBNZ said it assumes the economic impact on New Zealand from the coronavirus will be short and mostly felt in the first half of 2020.
     But it also acknowledged that some sectors of the economy, such as tourism and trade, were being significantly affected and although the understanding of the duration and impact of the outbreak was changing quickly, it agreed "the coronavirus outbreak was a risk global growth in 2020."
     "The Committee discussed the monetary policy implications if the impacts of the outbreak were larger and more persistent than assumed and agreed that monetary policy had time to adjust if needed as more information became available," RBNZ said.
     New Zealand's dollar, known as the kiwi, has eased this year but jumped 0.6 percent in response to RBNZ's decision to 1.55 to the U.S. dollar. But it remains 3.9 percent down from the start of this year.
     In an update to its economic projections, RBNZ maintained its forecast for OCR to average 1.2 percent this year but raised it to 1.0 percent in 2021 from November's forecast of 0.9 percent, implying rates will be held steady.
     For 2022 OCR is seen rising to 1.3 percent, from an earlier 1.1 percent, and then to 1.7 percent in 2023.
     Headline inflation is seen averaging 2.2 percent this year, up from 1.5 percent in 2019, but then easing to 1.7 percent in 2021, before rising back to 2.1 percent in 2022 and 2.0 percent in 2023.
     Gross domestic product is seen averaging 1.9 percent this year, down from November's forecast of 2.1 percent and down from 2019's 3.1 percent.
     In 2021 New Zealand's economy is seen growing 2.9 percent, then 2.6 percent in 2022 and 2.0 percent in 2023.

New Zealand holds rate, steady for 'considerable time'

     New Zealand's central bank left its benchmark Official Cash Rate (OCR) at 1.75 percent, as widely expected, and said it expects to maintain the OCR "at this expansionary level for a considerable time" to maximize employment and maintain low and stable inflation.
      In his first statement as governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr added the "direction of our next move is equally balanced, up or down. Only time and events will tell."
      The policy decision was widely expected and the guidance echoed that of his predecessor, Grant Spencer, who handed the reins of the RBNZ to Orr on March 27.
       In his last statement as acting governor, Spencer on March 22 said the RBNZ would keep an accommodative policy for a considerable period but its policy may need to adjust to the numerous uncertainties it faces.
       The RBNZ has kept its rate steady since a 25-basis point cut in November 2016 when it also adopted a neutral policy stance.
       While the central bank's forecast for inflation, growth and OCR was little changed from its previous policy statement in February, Orr now has a dual mandate of employment along with inflation, similar to the United States, Australia and Norway.
       In March the New Zealand government amended the Policy Targets Agreement (PTA), requiring monetary policy to be conducted so it supports maximum levels of sustainable employment along with the requirement that inflation should be between 1 and 3 percent, with a focus on 2 percent.
       In addition, the RBNZ's monetary policy decisions will from 2019 be decided by a Monetary Policy Committee (MPC) of 5-7 members, taking away the current governor's sole authority for policy decisions.
        A majority of the new MPC - four - is planned to come from RBNZ staff while three will be external members, and the governor will be the chair. The Treasury will have a non-voting seat as observer to provide information about fiscal policy.
        In its policy statement, the RBNZ pushed back the expected date for a rate hike to September 2019 from June 2019 when the rate is seen rising to 1.9 percent.
        But in 2020 the RBNZ expects the key rate to rise rapidly, hitting 2.0 percent by March 2020, then 2.1 percent in June, 2.2 percent in September and 2.3 percent in December. By June 2021 the rate is seen at 2.4 percent.
        The delay in the first rate hike since July 2014 mirrors a slightly lower inflation forecast, with inflation first seen hitting 2.0 percent in December 2020 as compared with September 2020.
        There were only minor changes in the central bank's growth forecast, with 2018 growth seen averaging 2.8 percent, down from February's forecast of 2.9 percent, and 2019's growth seen averaging 3.1 percent, down from 3.3 percent.
         In the first quarter of this year New Zealand's inflation rate eased to 1.1 percent from 1.6 percent while Gross Domestic Product grew by an annual 2.9 percent in the fourth quarter of last year, down from 3.0 percent.

New Zealand cuts rate 25 bps and shits to neutral bias

    New Zealand's central bank lowered its benchmark Official Cash Rate (OCR) by a further 25 basis points to 1.75 percent but shifted to a neutral guidance, moves that were widely anticipated.
    The Reserve Bank of New Zealand (RBNZ) has now cut its rate by 75 basis points this year and by 175 points since embarking on an easing cycle in June 2015.
    RBNZ Governor Graeme Wheeler said monetary policy would continue to remain accommodative but the bank expects economic growth to be strong enough for inflation to settle near the middle of its target range.
    "Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly," Wheeler said.
    In contrast Wheeler said in September, when the RBNZ left its rate unchanged, that "further policy easing will be required to ensure that future inflation settles near the middle of the target range."
    New Zealand's inflation rate was steady at 0.4 percent in the third quarter of this year, recently revised from an initial 0.2 percent due to a processing error, well below the bank's target of 2.0 percent, plus/minus 1 percentage point.
    But the RBNZ expects inflation to start to rise from the fourth quarter, reflecting its easy policy stance, accelerating economic activity and reduced drag from inflation linked to trade.
    As in the previous policy statement from September, Wheeler said the exchange rate of the New Zealand dollar - known as the kiwi - remains too high and puts pressure on the country's exporters and continues to generate negative inflation through imports.
    "A decline in the exchange rate is needed," Wheeler said, repeating his plea from September.
    The kiwi began depreciating in July 2014 and fell to a low of almost 1.60 to the U.S. dollar in September last year, a level not seen since 2009.
    But since then, it has appreciated firmed and was trading at 1.38 to the U.S. dollar today for a rise of 5.8 percent since the start of this year, pushed up by low global interest rates that is keeping upward pressure the exchange rate.

New Zealand holds rate, data to determine rate cuts, rises

    New Zealand's central bank maintained its benchmark Official Cash Rate ((CR) at 3.5 percent but adopted a neutral policy stance by saying that it "future interest rate adjustments, either up or down, will depend on the emerging flow of economic data."
    The Reserve Bank of New Zealand (RBNZ), the first central bank in advanced economies to raise its rate last year, added that it expects to keep its rate on hold for some time.
    In its previous statement from December, the RBNZ had maintained an tightening policy bias, saying further increases in the policy rate were expected to be required at a later stage. Economists had expected the RBNZ to maintain rates and adopt a more dovish outlook for rates.
    The reasons for the RBNZ's more pessimistic view is based on a weaker than expected growth in its trading partners, fiscal consolidation, lower dairy prices, the risk of drought and the dampening impact of the high exchange rate of the New Zealand dollar, known as the kiwi.
    The effect is that inflation is likely to be below the central bank's target band through this year, and could even turn negative "for a period" before its moves back toward 2 percent, but in a slower fashion that previously expected.
    On the other hand, RBNZ Governor Graeme Wheeler acknowledged that lower oil prices, and thus fuel prices, "will increase households' purchasing power and lower the cost of doing business," while the housing market was showing signs of picking up, particularly in Auckland.
    As in recent months, Wheeler said the exchange rate of the kiwi "remains unjustified" and unsustainable despite recent easing and he expects to "see a further significant depreciation."

New Zealand holds rate, expects further rises after pause

    New Zealand's central bank held its policy rate steady at 3.50 percent, as expected, but said it still expects to tighten its policy further after a period of monitoring and assessment.
    The Reserve Bank of New Zealand (RBNZ), which has raised its rate by 100 basis points since March, issued the following statement:
 

"Statement issued by Reserve Bank Governor Graeme Wheeler:

The Reserve Bank today left the Official Cash Rate unchanged at 3.5 percent.

New Zealand’s economy is expected to grow at an annual pace of 3.7 percent over 2014. Global financial conditions remain very accommodative and are reflected in low interest rates, narrow risk spreads, and low volatility across a range of asset markets. Accommodative financial conditions are supporting a moderate rate of global growth, albeit uneven across regions.