RBNZ monetary policy: Assessing future bias

At yesterday’s meeting, as expected, the 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. GDP growth in June quarter was stronger than expected but downside risks remain (Neutral bias)
• CPI inflation below the 2 percent mid-point target due, hence monetary policy support to continue for some time. Growth will pick up in the coming years, helping inflation to reach 2 percent midpoint of the target range. (Dovish bias)
• Global economic growth to support demand for services and products of New Zealand though trade tensions clouding the outlook. (Neutral bias).
• Domestically, ongoing spending and investment, by both households and government, is expected to support growth. (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. Core inflation rising towards 2 percent target. (Neutral bias)
• RBNZ announced that it plans to keep the rate at this level through 2019 and 2020. (Dovish bias)

Compared to the previous statement, this one is more dovish on balance, largely due to the rate hold announcement through 2019/20.

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 2019.

The Kiwi dollar is currently trading at 0.664 against the USD. The Dovish RBNZ is countered by weakness in the USD.