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MNI PREVIEW: Expectations Growing For RBNZ November Rate Cut

MNI (London)
By Lachlan Colquhoun
     SYDNEY (MNI) - Expectations are growing that the Reserve Bank of New
Zealand will respond to the ongoing economic slowdown with a third rate cut this
year.
     As of Tuesday, financial markets were pricing a 76% chance of a 25bps cut
this week, regaining momentum after slipping in late October. The RBNZ has
already cut its Official Cash Rate (OCR) by 0.75% this year, down to a record
low 0.75%, with the last move a heftier-than-expected 50bps cut in August.
     Under Governor Adrian Orr, the RBNZ has been upfront about its preparedness
to extend monetary policy stimulus to support its inflation and employment
targets, both of which have slipped in recent months.
     Inflation fell to 1.5% in September, outside the RBNZ target range of
between 2% and 3%.
     The Bank's mandate is also to promote "sustainable employment", but
unemployment edged higher to 4.2% in the third quarter, up from a decade low
3.9%. Wages growth, however, was solid at 0.6%.
     Second quarter growth data showed the economy growing at an annualized
2.1%, the lowest level since 2013. Data for Q3 will not be released until
mid-December.
     --TRANSMISSION
     In October, RBNZ Assistant Governor Christian Hawkesby told MNI that while
some indicators continued to disappoint, he believed that the transmission of
monetary policy had been successful, translating into lower interest rates for
borrowers while also keeping the New Zealand dollar low and helping exporters.
     'We have been very happy to see the way the interest rate cuts are working
through the transmission mechanisms," Hawkesby said.
     "But it will take longer to judge the success in terms of economic activity
and inflation."
     This week's decision remains a balance between waiting to judge the impact
of current policy, or the Bank's earlier willingness - in the words of Adrian
Orr - to stay "ahead of the curve."
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com
[TOPICS: MMNRB$,M$A$$$,M$N$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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