Reserve Bank leaves Official Cash Rate unchanged at one per cent

Marco Green
February 14, 2020

The NZD surged higher yesterday afternoon following an upbeat monetary policy statement from the RBNZ.

This encouraged a greater sense of market risk appetite, benefitting the New Zealand Dollar as fears over the disease's ultimate impact on the global growth rate diminished.

RBNZ Assistant Governor Christian Hawkesby said in an interview with Bloomberg today that the central bank has a "genuine neutral bias" on interest rates and "a genuine openness about where things go from here". "The Committee agreed that ongoing low interest rates were needed to keep inflation and employment close to their mandated targets". Previous statements highlighting that further stimulus can be expected to be added in the upcoming months to fuel the economy were also removed in the announcement following the first policy meeting of the year.

ASB economists said viral outbreaks typically have a temporary impact on growth, and they now assume a short-term hit to New Zealand GDP that won't necessitate a policy response.

The next OCR decision from the Reserve Bank is expected at the end of March. The chart below outlines the different 3m implied yields now priced by the markets along with our in-house forecasts for 3m interest rates in 2020.

Evidence that inflationary pressure eased in January could give investors incentive to sell out of the New Zealand Dollar, taking advantage of recent gains.

There are fears the virus will curb demand for New Zealand commodities, particularly in largest trading partner China where the outbreak originated. With suspended corporate operations and over 1,000 casualties driven from virus outbreak in China, the global health emergency is likely to weigh on New Zealand's economy.

"However, soft momentum in economic growth has continued into early 2020".

The Reserve Bank will hold its official cash rate at a record low of 1% Wednesday in Wellington, according to all 24 economists in a Bloomberg survey.

Other reports by Click Lancashire

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