MNI STATE OF PLAY: RBNZ Seen On Hold, Return To Neutral Stance

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand will likely keep monetary

policy unchanged Wednesday, but use the Monetary Policy Statement to signal a

return to a neutral stance, perhaps even with a more dovish leaning as the

economy loses momentum.

     There has been no official commentary from the RBNZ since the last interest

rate decision back in November, when rates were again held at 1.75%, the level

first set in November 2016. But since the last meeting, the global economy has

been undermined by uncertainty and a flow of disappointing data.

     RNBZ Governor Adrian Orr said earlier last year that the next movement in

rates could be either "up or down", although that phrase was removed from the

November MPS, with the bank instead forecasting gradual OCR hikes from mid-2020.

     Orr stated in the following press conference, however, that cuts had not

been taken off the table.

     Financial markets anticipate further guidance Wednesday, with an

expectation that the Bank will return to a more neutral footing, perhaps even to

an easing bias for the Overnight Cash Rate in the medium term.

     Any return to the previous form of words would see the RBNZ follow the

Reserve Bank of Australia, whose recent Statement on Monetary policy marked a

significant change in their outlook, with the Bank now saying that an interest

rate cut could be justified if the slowdown continues.

     --FORECAST REVISIONS

     Domestically, New Zealand's inflation edged higher to an annualized 1.9% in

the fourth quarter of 2018, close to the midpoint of the RBNZ's 1% to 3% target.

The economy cooled to 2.6% in Q3, while unemployment jumped to 4.3% in Q4, data

released last week showed.

     The Monetary Policy Statement will be closely watched for downward

revisions on forecasts for growth, inflation and an upward revision for

unemployment, all of which would play into a change of tone on rates.

     The kiwi dollar has been in decline this month on profit-taking in

anticipation of a change in language, and after starting February at $0.6900 has

slipped to $0.6700.

     The RBNZ also enters 2019 with a new structure on the cards and a new

committee based decision-making process, expected to begin in May after

legislation is passed by Parliament in April.

--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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