Almost lost in the maelstrom of US election coverage is the fact that the Reserve Bank of New Zealand will meet this week to decide what it should do with its official interest rate which sits currently at 2%.
The market favours another cut of 0.25% to 1.75% but analysts at Goldman Sachs believe that both the RBNZ and it cross-Tasman counterpart, the RBA, have already stimulated their respective economies enough.
Goldman analyst Rohan Khanna acknowledged that “weaker than expected domestic inflation outcomes, softening inflation expectations and an elevated exchange rate has forced the RBA and the RBNZ to ease monetary policy during 2016”.
But he says that even though the market expects more cuts from the RBA and RBNZ, “the evolving macro picture gives confidence to our economists that further action is unwarranted in the near term”.
On Australia he says:
The RBA upgraded the outlook for nominal income growth, sounded more upbeat on the outlook for global inflation, less concerned on China-related risks and comfortable with its domestic inflation forecasts. With the economy growing above potential, a positive inflection point for inflation in sight and Gov. Lowe focused on financial stability, our economists expect the RBA to be on hold until Q12018.
While for New Zealand’s RBNZ, Khanna says that because RBNZ governor McDermott has consistently confirmed an easing bias in recent months he may follow through at this week’s meeting. But he highlights that save for the high Kiwi trade-weighted-index, New Zealand’s economy is actually doing pretty well.
“GDP growth is running some 100bp above its potential rate, inflation expectations have stabilised, inflation in 3Q16 surprised to the upside and dairy prices have rallied substantially from the mid-2016 lows,” he wrote.
All in all it seems a more positive backdrop for the Australian and New Zealand economies than many give them credit for.
Business Insider Emails & Alerts
Site highlights each day to your inbox.