ASB reactions to the Reserve Bank of New Zealand monetary policy news today

In summary:

  • The Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) on hold, along with its neutral policy outlook.
  • Although the inflation outlook is now higher, the RBNZ's outlook for the OCR has barely changed.
  • The key development with the Monetary Policy Statement (MPS) is the inclusion of assumptions around some key government policy changes. The assumptions focus on policy shifts that are likely to have the most significant impact on the inflation outlook and, on a net basis, will be inflationary.
  • Very importantly, the inclusion of these policy assumptions has shifted the RBNZ's OCR outlook very little. That may be because the RBNZ had appeared to already trim its growth outlook back in September. Hence, the inclusion of added government stimulus has since boosted growth back in line with August's projection.
  • Looking ahead to the RBNZ's deliberations next year, there will be further forecast fine-tuning to account for the Government policy changes as more detail is known. But a big Government-related lurch in the RBNZ's policy assessment seems unlikely. We remain comfortable with our view that the RBNZ will lift the OCR in early 2019.

And, from ASB more specifically on the NZD ... NZD assumed to stay down

  • The RBNZ noted that the recent fall in the NZD would support tradable inflation over the coming year. Further, the RBNZ believes that the Trade Weighted Index will remain at its current level of 73.5 over the remainder of the forecast horizon, based on a judgement that the fall was due to reduced offshore demand for NZ dollar assets.
  • We do see the risk that the NZD recovers some of its recent election-related losses as structural factors such as the high Terms of Trade will continue to be NZD supportive.

(bolding mine)


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Earlier on the Reserve Bank of New Zealand today: