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MNI REVIEW: RBNZ On Hold; Upbeat, But Sees Downside Virus Risk

MNI (London)
By Lachlan Colquhoun
     SYDNEY (MNI) - The Reserve Bank of New Zealand kept interest rates
unchanged Wednesday as it sees growth accelerating later this year, although it
acknowledged the emerging risk to both the domestic and global economy from the
coronavirus outbreak.
     As expected, the Monetary Policy Committee left the benchmark Official Cash
Rate at a record low 1.00%, pointing to falling unemployment and inflation
moving to 1.9%, close to midway between the Bank's 2% to 3% target.
     --VIRUS RISK
     Addressing downside risks, the RBNZ said coronavirus  would impact
negatively on the economy but would be limited to the first part of 2020,
although the statement said there was a risk "the impact will be larger and more
persistent".
     "Monetary policy has time to adjust if needed as more information becomes
available," the RBNZ added.
     Speaking at the press conference, Governor Adrian Orr said the RBNZ
estimated that impact of the coronavirus outbreak on the global economy would
peak in February, cutting GDP growth in half in the first quarter, but the
"working assumption" was that "normality returns in March."
     Asked if the Bank had given thought to an "insurance" rate cut to pre-empt
any shock from the coronavirus, Orr said the monetary policy was in a "very good
starting position" with current rates of inflation and employment and, for now,
could take a wait-and-see approach.
     --UPBEAT
     Overall though, the RBNZ was upbeat over the economic outlook, saying "
growth is expected to accelerate over the second half of 2020 driven by monetary
and fiscal stimulus, and the high terms of trade".
     "Monetary policy has friends," said Orr, referring to the NZ$12 billion
spending package announced by the NZ Government in November which he said had
helped boost confidence.
     "The outlook for government investment is stronger following the
announcements in December. There are also indications household spending growth
will increase," he said
     The RBNZ cut rates twice last year down from 1.75%, with a 50 basis point
move in August, and the Bank attributes the better economic outlook to the more
accommodative monetary policy and significant fiscal stimulus from the NZ
Government.
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com
[TOPICS: MMNRB$,M$A$$$,M$N$$$,MT$$$$,MX$$$$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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