Monetary policy announcement from the Reserve Bank of New Zealand

'No change' was widely expected

  • Keeps the Official Cash Rate (OCR) at 2.5%
  • Says further NZD depreciation would be appropriate

More:

  • Headline inflation expected to increase over 2016, but take longer to reach target range than previously expected
  • Growth expected to increase over coming year
  • Monetary policy will continue to be accommodative
  • Some easing may be needed in coming year
  • Says inflation will take longer to reach target
  • Auckland house price inflation remains a stability risk

The statement flags further monetary policy accommodation and is a touch on the dovish side. While expectations were for no change in the cash rate there were expectations the statement would be 'easier', paving the way for cuts this year, likely as soon as the next meeting.

The dovish lean to the statement, along with the clear statement desiring a lower NZ dollar are sending the NZD lower.

Prior to the announcement we got news from Fonterra, lowering their dairy payout, this is another bearish factor weighing in the NZD now.


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On inflation, last week we got q/q deflation, and just 0.1% y/y. The 'target range' for the RBNZ is 1 - 3%. They've been missing this for a long time now, their forecasts have been woeful, and yet they are still insisting its on track. The RBNZ are under plenty of political pressure in NZ to cut rates and get to the target (or at least closer). Unless there is a rally in oil prices they are likely to continue to miss the target.