A monetary easing bias remains in place in New Zealand

The Reserve Bank of New Zealand (RBNZ) reduced the benchmark overnight cash rate by 25 basis points (bps) in July following an equivalent cut in June, taking the key rate to 3.00%. Inflationary pressures remain weak, with the consumer price index rising by 0.3% y/y in the second quarter of 2015, well below the RBNZ's 1-3% target range. 

"We expect that another 25 bps cut to the key rate will materialize following the September 10th monetary policy meeting on the back of muted inflation and monetary authorities' preference for a weaker New Zealand dollar", says Scotiabank.

The country's growth outlook faces risks related to the fall in key export commodity prices (dairy). Nevertheless, relatively strong domestic demand dynamics continue to support economic momentum. Strong net immigration will continue to place upward pressure on housing prices and support already high levels of construction activity. Real GDP expanded by 2.9% y/y in the first quarter of 2015 and growth will likely average around 2½% this year as a whole.