Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


RBNZ Observer Update: On hold as still spooked by high NZD

RBNZ Observer Update: On hold as still spooked by the high NZD

The RBNZ left the cash rate unchanged at 2.50% today. The central bank was noticeably more upbeat on the outlook for domestic activity. However, their concern over the high NZD seems to have held them back from hiking rates today. Instead, the RBNZ significantly bolstered their tightening bias, flagging that interest rate rises would be needed and noting that they expect 'to start this adjustment soon’. With demand booming and inflation already running ahead of the RBNZ’s expectations, we expect that they will need to hike rates soon in order to keep inflation contained. A hike seems likely in March.

Facts
• The RBNZ kept its overnight cash rate unchanged at 2.50% today (12 of 15 analysts expected no change; HSBC had expected a 25 basis point hike).
• On economic activity, the central bank was more upbeat, noting ‘New Zealand’s economic expansion has considerable momentum’.
• On the NZD, the RBNZ continued to note that ‘the Bank does not believe the current level of the exchange rate is sustainable in the long run’.
• On the outlook for policy, the central bank flagged ‘a need to return interest rates to more-normal levels’ and that the RBNZ ‘expects to start this adjustment soon’.

Implications
Momentum is continuing to build in the New Zealand economy, and the RBNZ acknowledged this in today’s statement, presenting a noticeably more upbeat view on the economy. With demand booming and the economy already at capacity, cost pressures are beginning to rise and the central bank strengthened their tightening bias by flagging upside risks to the inflation outlook.

However, despite increased inflation risks, a stronger domestic outlook and recent upside surprises to the RBNZ’s own forecasts the central bank chose not to lift rates today. In our view, a strong case could be made for tightening rates now. However, lingering concerns about the high NZD seem to have been a key factor behind the central bank’s decision to delay increasing rates – with the central bank continuing to note that, in their view, the current level of the exchange rate is not sustainable in the long-run.

Instead, the RBNZ flagged that rate increases are imminent, strengthening their language around the need for higher interest rates. The RBNZ noted that the current economic environment suggests ‘a need to return interest rates to more-normal levels’ and that they ‘expect to start this adjustment soon’. A hike seems likely in March.

Bottom line
The RBNZ left the official cash rate unchanged at 2.50% today and strengthened their language around the need for higher interest rates.

The central bank presented a more upbeat view on the outlook for the domestic economy, but lingering concerns about the high NZD seem to have driven a further delay in tightening.

With demand booming and the economy already operating at capacity, a hike in March seems likely in order to keep inflation contained.

ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Errors Found: Electricity Authority Dumps Transmission Pricing Modelling

The Electricity Authority is ditching the cost-benefit analysis at the heart of its controversial attempt to find a new way to divide up costs for the national grid after finding an expanding range of serious computational errors in the work by Australian consultancy Oakley Greenwood. More>>

ALSO:

New Record: Migrant Arrivals At 129,500 A Year

Annual net migration has been steadily increasing since 2012. "This was mainly due to the rising number of migrant arrivals to New Zealand," population statistics senior manager Peter Dolan said. "Fewer migrant departures also contributed to the increase in net migration." More>>

ALSO:

Launched: NASA's Super Pressure Balloon Takes Flight From NZ

NASA successfully launched its football-stadium-sized, heavy-lift super pressure balloon (SPB) from Wanaka, New Zealand, at10:50 a.m. Tuesday, April 25 (6:50 p.m. April 24 in U.S. Eastern Time), on a mission designed to run 100 or more days floating at 110,000 feet (33.5 km) about the globe in the southern hemisphere's mid-latitude band. More>>

ALSO:

Trade Agreements: TPP Minus US Starting To Gain Ground

The Japanese government is picking up the pace on reviving the Trans-Pacific Partnership trade and investment deal, with talks scheduled next month among the 11 countries left in the pact after the withdrawal by the US after the election of president Donald Trump. More>>

ALSO:

PACER:

Prices Up 2.2%: Annual Inflation Highest In Over Five Years

"Rising petrol prices along with the annual rise in cigarette and tobacco tax lifted inflation," prices senior manager Jason Attewell said. "Petrol prices in New Zealand are closely linked to global oil prices, and cigarettes and tobacco taxes rise in the March quarter each year". More>>

ALSO:

Undertaxed? NZ Income Tax Rate Second Lowest Among Developed Nations

New Zealand workers pay the second smallest portion of their income to the government among developed nations and less than half the average ratio of their Organisation for Economic Cooperation and Development peers. More>>

ALSO:

Get More From Scoop

 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news