MNI PREVIEW: RBNZ Seen On Hold, But May Not Pause For Long

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand is set to leave rates

unchanged at a record low 1% Wednesday, although further cuts are likely in

coming months as the Bank attempts to stimulate a slowing economy.

     The RBNZ cut by 50bps in August, a move designed to put the bank ahead of

the curve in terms of stimulus and give New Zealand a faster and better chance

of achieving targets, particularly on inflation.

     Since the August rate cut, data has been released which showed the NZ

economy grew by 0.5% in the second quarter, delivering annualized growth of

2.1%. While this was better than the 0.4% expected by the market the result was

nevertheless the weakest since late 2013.

     Inflation is now at an annualized 1.7%, below the mid-point of the 1% and

3% target range.

     The RBNZ has previously told MNI that after August's bigger-than-expected

cut, it is prepared to wait and analyze the impact on the economy.

     Even if the Bank does not cut again this month, the outlook remains dovish,

with another 25bps cut expected to be on the table in either November or early

2020.

     The RBNZ has not ruled out zero or negative rates and has also modelled

scenarios of quantitative easing should those policies be required, although a

key reason behind the big cut in August was a hope that a large cut could

deliver more stimulus in the short term and avoid the need for other monetary

policy tools.

     While the RBNZ will make a short statement to accompany its decision

tomorrow, it will not release a full Monetary Policy Statement November 13

policy meeting.

--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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