The RBNZ Cuts GDP and Inflation Forecast

New Zealand dollar
  • The RBNZ Cuts GDP and Inflation Forecast

The Reserve Bank of New Zealand (RBNZ) left interest rates unchanged at 1.75% for a 19th consecutive month in May.

And that looks set to continue for some time yet based off the latest forecasts and statement released by new RBNZ Governor Adrian Orr.

They were dovish, indicating the RBNZ is in no rush to lift official interest rates.

“Economic growth and employment in New Zealand remain robust, near their sustainable levels. However, consumer price inflation remains below the 2% mid-point of our target due, in part, to recent low food and import price inflation, and subdued wage pressures.” Orr said, adding that he sees “consumer price inflation gradually rise to our 2% annual”.

Orr said the best way to ensure to see inflation move back to target would be “to keep the OCR [overnight cash rate] at this expansionary level for a considerable period of time”.

“This is the best contribution we can make, at this moment, to maximising sustainable employment and maintaining low and stable inflation,” he said, referring to his new dual policy mandate.

For a second consecutive meeting, the RBNZ also offered no commentary on the New Zealand dollar, indicating a degree of comfort at its current level.

Adding to the dovish undertones of the May monetary policy statement, the RBNZ also downgraded its forecasts for GDP growth and inflation in the period ahead.

Crucially, the RBNZ pushed back the probable timing of a rate hike, now seeing it arrive in the September quarter next year, one quarter later than three months ago.

It didn’t change its view that the first rate hike will come by the first quarter of 2020.

“The Official Cash Rate (OCR) will remain at 1.75 percent for some time to come. The direction of our next move is equally balanced, up or down,” Orr said.

“Only time and events will tell.”

Again, another dovish signal from the bank.

The combination of dovish commentary and forecast downgrades has seen the NZD/USD tumble, falling from from 0.6980 to 0.6940.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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