MNI PREVIEW: RBNZ Seen On Hold For Now; Virus An Outlook Risk

By Lachlan Colquhoun

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

interest rates unchanged at 1.0% on Feb. 12, leaving itself with some policy

ammunition to act if downside risks, including from the coronavirus outbreak,

transpire later this year.

     There have been positive developments in recent weeks, but with the

short-term virus risk to the economy growing, the RBNZ could downgrade its

near-term growth outlook and remind it can add stimulus if needed

     Employment data published Feb. 4 showed the domestic economy continuing to

improve, helped by two interest rate cuts by the RBNZ last year and a strong

fiscal program from the Government.

     The improving economy might ordinarily mean the end of the interest rate

cutting cycle, but New Zealand is a small trading economy which exports around

NZD17 billion to China each year, its largest trading partner.

     --DATA

     Estimates of the coronavirus impact are, however, currently confined to Q1,

with Westpac revising quarterly growth down to 0.1% from 0.7%, before

forecasting a recovery later in the year.

     Unemployment fell to 4% in the December quarter, down from 4.1% in Q3,

while wages increased by 2.6% -- the highest growth rate since 2009.

     Inflation is now at 1.9%, just, but still, shy of the RBNZ's 2% to 3%

target range.

     The RBNZ cut the Official Cash Rate twice in 2019 to a record low of 1.0%.,

with the second cut in August a surprise cut of 50 basis points which the Bank

said at the time was a "pre-emptive" move to revive the economy.

     Further details on the RBNZ's 2020 outlook will follow Wednesday's policy

decision as the quarterly Monetary Policy Statement is published and Governor

Adrian Orr holds his post-meeting press conference.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: MMNRB$,M$A$$$,M$N$$$,MX$$$$]