RBNZ likely to keep OCR unchanged in November

The Reserve Bank of New Zealand is set to meet next week for its monetary policy meeting. According to an ANZ research report, the central bank is expected to again keep its OCR unchanged at 1.75 percent. The RBNZ has kept a cautious and watchful stance for several months and that is not likely to change.

The housing market in New Zealand has weakened. Meanwhile forward growth indicators are mixed. Consumer sentiment remains decent; however, business confidence has diminished. Job ads growth has eased, while the ANZ Truckometer is giving a soft signal for the third quarter. Softer housing market activity portends potential negative spill-overs.

The New Zealand dollar is significantly lower. Headline inflation had surprised on the upside, rising 0.5 percent sequentially in the third quarter. However, core inflation remained widely stable. Meanwhile, the labor market is tight. The RBNZ is likely to discount the outsized third quarter moves in employment and participation; however, the jobless rate at 4.6 percent is a strong signal. The global growth backdrop continues to be positive.

Therefore, the picture is hardly clear. Developments have been mixed leaving the RBNZ with the view that “numerous uncertainties remain”. The New Zealand central bank had signaled in September that it would tweak its growth projections lower and the sequential pace is likely to be lowered from 0.9-1.0 percent q/q towards perhaps 0.8 percent q/q – at least in the near term, stated ANZ.

However, changes to the interest rate projection are likely to be small, if any. The RBNZ, in its May and August statements had suggested that OCR hikes would begin from late 2019.

At 13:00 GMT the FxWirePro's Hourly Strength Index of New Zealand Dollar was slightly bullish at 63.3186, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -3.32387. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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