MNI PREVIEW: Expectations Growing For RBNZ November Rate Cut

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

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