Published: Fri, February 14, 2020
Economy | By

RBNZ keeps official cash rate at 1%

RBNZ keeps official cash rate at 1%

RBNZ Assistant Governor Christian Hawkesby said in an interview with Bloomberg today that the central bank has a "genuine neutral bias" on interest rates and "a genuine openness about where things go from here".

The Pound to New Zealand Dollar (GBP/NZD) exchange rate will, however, continue to be driven by news concerning China's coronavirus outbreak, with any further signs of escalation potentially limiting the risk-sensitive "Kiwi".

The Reserve Bank has held its benchmark interest rate at a record low, but signalled it will cut it if the impact of the coronavirus threatens the economy.

The Reserve Bank of New Zealand (RBNZ) decided in favor of keeping rates unchanged on Wednesday in line with what the analysts had expected.

"There is a risk that the impact will be larger and more persistent".

Employment is at or slightly above its maximum sustainable level while consumer price inflation is close to the 2 percent mid-point of our target range.

"The Committee discussed the reasons for an expected pick-up in growth over 2020, including monetary and fiscal stimulus and the high terms of trade". The widespread travel ban may make it worse for New Zealand's economic growth, Prime Minister Jacinda Ardern commented. There are also indications household spending growth will increase.

The odds of a rate cut later this year have risen to more than 50% from about 40% at the start of 2020, swaps data show. The government has also announced a NZ$12 billion ($7.7 billion) infrastructure investment plan that may start to boost growth later this year.

"Overall, the inflation environment is now looking a little firmer than the RBNZ had expected at the time of the last policy statement in November", said Satish Ranchhod, an economist at Westpac in Auckland.

ASB economists said viral outbreaks typically have a temporary impact on growth, and they now assume a short-term hit to New Zealand GDP that won't necessitate a policy response.

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