RBNZ likely to keep key interest rate on hold in November

The Reserve Bank of New Zealand is set to meet for its policy decision next week. According to an ANZ research report, the central bank is likely to keep the OCR on hold at 1.75 percent. The RBNZ might reaffirm that the next move in the OCR could be up or down.

Since the central bank’s August Monetary Policy Statement, the second quarter GDP and the third quarter inflation both surprised on the upside. This definitely gives the central bank a little more room to breathe; however, policy deliberations might stay focus on the balance of medium-term risks. The central bank has been explicit that it is worried regarding the activity’s outlook; that it will look through transitory boosts to inflation; and that core inflation needs to rise sustainably to the 2 percent midpoint.

In this context, the acceleration in the consumer price inflation in the September quarter is something of a red herring. Widespread price pressures are still lacking and core rate seems to have steadied below the target midpoint.

“In the same vein, while the stronger starting point for activity is helpful, the RBNZ is likely to still conclude that a marked acceleration in GDP growth is required from here to ensure medium-term inflation heads sustainably back to target”, stated ANZ.

Since the central bank’s last Statement, prices of commodity have dropped, businesses have stayed downbeat and the global outlook has weakened around the edges, with increasing market volatility and the uncertain outlook for China of particular concern.

“We currently see the OCR on hold for the foreseeable future. It will be difficult for the economy to accelerate and to sustain stronger inflation over the medium term. We see risks being tilted towards the next OCR move being a cut, but we are mindful of risks on both sides of the ledger”, added ANZ.

At 12:00 GMT the FxWirePro's Hourly Strength Index of New Zealand Dollar was highly bullish at 114.207, while the FxWirePro's Hourly Strength Index of US Dollar was highly bearish at -108.203. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex