NZ Dollar and Bond Yields Ultimately Gain on RBNZ Rate Hold

Paterniano Del Favero
Agosto 10, 2017

Starting with an argument that might have prevented a complete Kiwi lift-off, the central bank forecasted their average official cash rate rising in the third quarter of 2019.

The RBNZ's decision was widely expected by economists and also comes after a surprise fall in the second quarter employment rate and comparatively sluggish GDP growth. The local dollar is up 6 percent so far this year.

In the first quarter of this year, New Zealand's economy grew a below trend 0.5%, after an anemic 0.4% expansion in the fourth quarter blamed on temporary factors including an quake.

"We were expecting a little bit more dovishness within the statement, but clearly it shows that it's not going to take one or two data points to shift the RBNZ", Philip Borkin, senior economist at ANZ said. Markets have initially deemed the announcement slightly more hawkish than expected.

Inflation accelerated to 2.2 percent in the March quarter, returning to the midpoint of the RBNZ's 1-3 percent target band for the first time in more than five years.

The dollar rose this morning as the official cash rate was held at 1.75 per cent.

But Wheeler, who leaves the job next month, said headline inflation was likely to decline and the outlook for tradables inflation was weak.

It reiterated that growth in the first quarter was lower than expected, nodding to the recent softening in an economy which has recently enjoyed some of the fastest growth among advanced economies.

New Zealand's housing market is also cooling, led by a drop in Auckland prices, which may reduce pressure on inflation and keep interest rates lower for longer.

Governor Graeme Wheeler will address media from 10am on his final monetary policy statement before retiring. "This moderation is expected to persist, although there remains a risk of resurgence in prices given continued strong population growth and resource constraints in the construction sector".

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