- The RBNZ kept rates on hold this morning at 1.75%, and the accompanying statement was more dovish than the market expected.
- The resulting selloff in the Kiwi dollar has accelerated this morning, and it’s now fallen below US67 cents.
The Reserve Bank of New Zealand kept official interest rates on hold at 1.75% this morning, as expected.
And in a relatively dovish statement accompanying the announcement, the RBNZ said the next move higher is likely to be further away than first thought.
The Kiwi dollar initially fell by around 0.4% against the greenback following the rates decision.
But the selloff has picked up steam this morning. The Kiwi is down by more than 1% against the Japanese yen, and a short time ago, was still falling against most major pairs.
Here’s the move against the USD on a five-minute chart:
The Kiwi dollar’s move lower was exacerbated after shares in New Zealand dairy cooperative Fonterra went into a trading halt, as the company flagged a change in its earnings guidance.
In a brief statement this morning, RBNZ Governor Adrian Orr said “we expect to keep the official cash rate at this level through 2019 and into 2020, longer than we projected in our May Statement”.
Orr said GDP growth had slowed over the past year and risks to the near-term growth outlook were “on the downside”.
Capital Economics chief economist Paul Dales said the statement was more dovish than markets had assumed, although the bank’s focus remained on the short-term horizon.
The RBNZ “doesn’t appear to be too worried by the plunge in business confidence to a nine-year low in July and it actually nudged up its 2020 and 2021 GDP forecasts, to 3.4% and 3.2% respectively”, Dales said.
“It also noted that ‘there are welcome early signs of core inflation rising’ and that ‘the risks around this inflation outlook are roughly balanced’.”
“That said, the new projections show inflation rising to 2% in March 2021 rather than in December 2020,” Dales said.
Based on the revised outlook, Capital Economics now has a year-end target for the Kiwi dollar of 65 US cents.
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