The Reserve Bank of New Zealand (RBNZ) is about to announce its August interest rate decision.
While no one expects interest rates to move from 1.75% at this meeting, there’ll still be plenty of interest on what the bank has to say in its accompanying monetary policy statement, particularly in relation to the outlook for GDP growth and inflation in light of recent soft data.
And, like its compatriots at the Reserve Bank of Australia, there’ll be intense focus on any tweak of language in relation to continued strength in the New Zealand dollar.
The RBNZ will also release updated economic forecasts on the outlook for the currency, inflation, GDP and interest rates, providing this meeting even more market-moving clout that most.
Here’s the state of play.
- No one expects interest rates will move in either direction today.
- Of the the 11 economists polled by Bloomberg, all expect the cash rate to remain at 1.75%, mirroring sentiment from financial markets.
- That means that all focus will be on the bank’s monetary policy statement and updated economic forecasts.
- In particular, there’ll be plenty of interest in what the bank has to say about the level of the New Zealand dollar.
- When it last met in June, it said: “a lower New Zealand dollar would help rebalance the growth outlook towards the tradables sector”, noting that this was “partially in response to higher export prices”. Since that meeting, the New Zealand dollar trade-weighted index (TWI) has fallen by 1.4%.
- Despite a weak March quarter GDP report, it also delivered an upbeat assessment on the outlook for the economy.
- It said “the growth outlook remains positive, supported by accommodative monetary policy, strong population growth, and high terms of trade.”
- On the housing market, another key area for policy consideration, it acknowledged that house price inflation had “moderated further, especially in Auckland”, adding “this moderation is projected to continue, although there is a risk of resurgence given the on-going imbalance between supply and demand”.
- In June, annual price growth across the country stood at 5.8%, down from 6.7% in May, driven predominantly by a slowdown in Auckland.
- Finally, on inflation, it said that non-tradables (that influenced by domestic factors) and wage inflation remained “moderate but are expected to increase gradually”, noting that “this will bring future headline inflation to the midpoint of the target band over the medium term”. It added that “longer-term inflation expectations remain well-anchored at around 2%, something that was confirmed by data released earlier this week.
- In the June quarter, headline consumer price inflation (CPI) was flat, seeing the year-on-year rate fall back to 1.7% from 2.2% in the previous quarter.
- Excluding energy and food prices, core inflation — of more importance on the outlook for monetary policy settings — slowed to an annual pace of 1.4%, down from 1.6% in the March quarter.
- The RBNZ’s inflation target is 1-3%.
- As was the case in June, the RBNZ is likely to deliver a neutral rates bias in the final paragraph of the statement.
- Previously it said: “monetary policy will remain accommodative for a considerable period”, adding that “numerous uncertainties remain and policy may need to adjust accordingly”.
- As for the RBNZ’s updated forecasts, those offered in May can be found here.
- Both GDP and CPI undershot the bank’s forecasts in the June quarter, while the New Zealand TWI currently sits around 3% above the levels it saw for the September quarter.
- It previously forecast that the overnight cash rate would rise to 2% by the first quarter of 2020, nearly 18 months later than what financial markets are currently pricing.
The monetary policy decision, statement and forecasts will be released at 9am in Wellington on Thursday, August 10. (7am Sydney, 5pm New York on Wednesday).
Business Insider will have all of the details as soon as it hits the screens.