RBNZ keeps rate on hold with a neutral bias, wants lower NZD

The Reserve Bank of New Zealand (RBNZ), at its monetary policy meeting, held late Tuesday decided to keep the Official Cash Rate (OCR) at a record-low of 1.15 percent while sticking to its neutral underlying tone and made slight changes to its guidance on future monetary policy.

The central bank mentioned that monetary policy is expected to remain accommodative for a long time, in order to support growth and guide inflation towards the RBNZ’s target on a sustained basis. However, while the RBNZ acknowledged the recent softer data, it held the line on just about every aspect of its forecasts. The projected OCR path was identical to the May Monetary Policy Statement, with a flat track for the next two years before a gentle upturn.

Weak global inflation pressures and a high New Zealand dollar mean that tradable inflation is expected to remain soft. That puts the burden on higher domestically-generated inflation, in order to keep overall inflation on target. The RBNZ believes that low-interest rates will achieve this, but needs time to do achieve their work. On that basis, market expectations for OCR hikes in the second half of 2018 seem misplaced as of now.

Meanwhile, the NZD/USD has slumped to a near 1-month low in the European session, taking cues from RBNZ’s Assistant Governor McDermott’s comments post the policy statement. At 08:50GMT, the kiwi traded 1.33 percent lower against the greenback at -0.0097.