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MNI RBNZ STATE OF PLAY: Minor Tweaks Hint At Growth Risk

--Moderates Language on Exchange Rate
--No Longer Characterizes Population Growth as "Strong"
By Sophia Rodrigues
     SYDNEY (MNI) - The Reserve Bank of New Zealand left the official cash rate
unchanged at 1.75% Thursday and made small tweaks in the statement that pointed
to growth risks growing forward but also slightly moderated its language on the
exchange rate. 
     In his first OCR statement since taking over as Acting Governor on Tuesday,
Grant Spencer maintained the central bank's policy outlook: "Monetary policy
will remain accommodative for a considerable period. Numerous uncertainties
remain and policy may need to adjust accordingly."
     Spencer will serve in an interim capacity for six months while a new
governor is chosen to replace Graeme Wheeler, whose five-year term ended
Tuesday.
     The RBNZ said second quarter GDP grew in line with expectations but
construction was weaker than expected. 
     Weaker construction, if sustained, could have bigger implications for
monetary policy given it is expected to be a major contributor to non-tradable
inflation and also to growth.
     The RBNZ also no longer characterized future population growth as "strong,"
another important factor for future monetary policy. Immigration could be
adversely affected by the policies of whoever forms the next government. In his
final speech, ex-governor Wheeler said a sharp decline in net immigration would
be a key domestic risk for the economy.
     The RBNZ said growth is projected to maintain its current pace going
forward, supported by accommodative monetary policy, population growth, elevated
terms of trade, and fiscal stimulus. But this language provided no direct hint
on whether there has been any downgrade in the outlook. This will be clear at
the next decision on November 9, which will be accompanied by a full update of
the central bank's outlook for the economy.
     On the exchange rate, the RBNZ acknowledged that the trade-weighted
exchange rate has eased slightly since the August statement but said a lower New
Zealand dollar "would help" to increase tradables inflation and deliver more
balanced growth.
     This is slightly more moderate language to the previous statement, when the
RNNZ said a lower New Zealand dollar "is needed" to increase tradables
inflation. 
     There was a small tweak in the commentary on inflation, with the RBNZ
replacing the line "the outlook for tradables inflation remains weak" with a
reference to "volatility in tradables inflation." This might suggest a very
minor upgrade in the inflation outlook, though much will depend on how the
exchange rate performs in the months ahead.
     As expected, there were no changes in the commentary on global growth and
inflation, or on the local housing market. 
[TOPICS: MT$$$$,MX$$$$]

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