MNI PREVIEW: RBNZ To Mull Rate Cut At Inaugural MPC Meet

By Lachlan Colquhoun

     SYDNEY(MNI) - The Reserve Bank of New Zealand will consider a first cut in

the Overnight Cash Rate since 2016 when the newly-formed Monetary Policy

Committee meets next week, as the economy and inflation slow.

     The Monetary Policy Statement, also due Wednesday, should reinforce the

Bank's easing bias and, if no rate cut is immediately forthcoming, it should

prepare the ground for a reduction from the current record low 1.75% later in

the year.

     The NZ economy has softened over the last six months and the RBNZ has

changed its outlook accordingly, moving to its dovish stance in the March MPS,

after earlier shifts from balanced to mildly hawkish, then back to balanced.

     Financial markets are looking for the cut by August, although there is no

consensus as to precisely when. RBNZ Governor Adrian Orr said in late April that

any decision would be 'difficult' and data dependent.

     --DATA CLUES

     While weakening, the data has not been entirely negative.

     Consumer prices rose less than forecast in Q1 2019, with annual inflation

falling to 1.5% from 1.9% in Q4 2018.

     Unemployment slipped to 4.2% from 4.3% previously, although the economy

shed jobs for the first time in over three years, with wages growth also

remaining low.

     The economy grew by 0.6% in Q4, 2018, after a disappointing 0.3% rise in

Q3. The result was in line with market expectations but below the 0.8 % forecast

by the RBNZ. The figure for Y/Y growth was 2.3%, against 2.6% at the end of Q3.

     A drag on output later in the year could be the RBNZ's plans to almost

double the amount of capital the largest banks will have to hold, likely leading

to increased lending costs for the real economy.

     The May meeting will be the first under the RBNZ's new monetary policy

framework and committee structure, in place since April 1.

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

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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