RBNZ monetary policy: Assessing future bias

At yesterday’s meeting, Reserve bank of New Zealand (RBNZ) kept monetary policy unchanged with overnight cash rate at 1.75 percent.

Let’s see in the monetary policy, how the bias stands for future actions,

• RBNZ keeps the economic expectations same as last monetary policy meeting. (Neutral bias)
• CPI inflation below the 2 percent mid-point target due, hence monetary policy support to continue for some time. (Dovish bias)
• Global economic growth to support demand for services and products of New Zealand though trade tensions clouding the outlook. Some emerging markets experiencing continued volatility. (Mild dovish bias).
• Domestically, ongoing spending and investment, by both households and government, is expected to support growth. However, the recent weaker GDP outturn implies marginally more spare capacity in the economy than we anticipated. The Government’s projected spending impulse is also slightly lower and later than anticipated. (neutral to mild hawkish bias)
• CPI inflation is likely to increase in the near term due to higher fuel prices. Beyond that, inflation is expected to gradually rise to our 2 percent annual target, resulting from capacity pressures. (Mild dovish bias)
• To support the economy, the interest rate is likely to remain in expansionary territory for a considerable period. (Mild dovish bias)

Compared to the previous statement, this one is more dovish on balance.

The statement clearly suggests that RBNZ is in no hurry to follow other central banks such as the U.S. Federal Reserve in increasing rates. Just like last time, RBNZ dropped its reference of stronger Kiwi dollar. Expect no major changes even hint in the first three quarters 2018. The Kiwi dollar is currently trading at 0.676 against the USD. Both dovish RBNZ and a strong dollar weigh.