FxWirePro: RBNZ to maintain neutral stance

Tomorrow morning Reserve Bank of New Zealand (RBNZ) will announce its monetary policy at 1:00 GMT, followed by a press conference at 2:00 GMT. Over the past 4 years or so, RBNZ has reduced rates from 3.5 percent to 1.75 percent, which is an all-time low, however, the bank is unlikely to push a lot further, though it has some more room to do so since it has indicated in the recent past that RBNZ would follow a slower path to monetary policy, a change is unlikely.

RBNZ announced that it would prefer to keep the policy rate unchanged at 175 bps heading into the end of the decade.

Let’s see how the economy and inflation has been doing in the recent past,

• After remaining at 0.4 percent in the first three quarters, inflation rose to 1.3 percent in the fourth quarter of 2016 and it rose further to 2.2 percent in the first quarter of 2017. However, it has declined to 1.7 percent in the second quarter, only to rise to 1.9 percent in the third. Inflation was 1.6 percent in the fourth quarter of 2017. Inflation declined further to 1.1 percent in the first quarter of 2018, only to jump to 1.5 percent y/y in the second quarter. It rose further to finish the year at 1.9 percent inflation.
   
• After reaching 4.1 percent y/y growth in the final quarter of 2016, the annual growth rate has gradually declined to 2.3 percent as of the fourth quarter of 2018.
   
• The unemployment rate is low at 4.3 percent but further improvements may take place if GDP growth accelerates.
   
• Dairy farmers are suffering from costlier kiwi dollar.    However, in 2019, the dairy price is showing strength.
   

A press conference is scheduled after RBNZ decision at 2:00 GMT.

We expect the commentaries to remain neutral as RBNZ announced preference to maintain rates at this level.