RBNZ Keeps Rates Unchanged - Nomura
Charles St-Arnaud, Research Analyst at Nomura, suggests that the
continued weakness in the inflation outlook forced the RBNZ to leave the
door open for a cut in June.
Key Quotes
“The
RBNZ kept its policy rate unchanged at 2.25%, against our expectations,
but maintained a dovish policy stance, stating that “further policy
easing may be required to ensure that future average inflation settles
near the middle of the target range”.
The RBNZ reiterated that
that the outlook for the global economy has deteriorated, but observed
that “monetary conditions are extremely accommodative internationally”.
Moreover, the central bank continues to view the “the prospects for
global growth, particularly around China, and the outlook for global
financial markets” as a significant downside risks to the outlook.
On
inflation, the RBNZ said “headline inflation remains low, mostly due to
low fuel and other import prices” and noted that “there has been a
material decline in shorter-term expectations”.
On the exchange
rate, the RBNZ continues to view the current level of the NZD as
elevated, stating that “the exchange rate remains higher than
appropriate given New Zealand’s low commodity export prices. A lower New
Zealand dollar is desirable to boost tradables inflation and assist the
tradables sector”. The second part of the quotation suggests that the
outlook for inflation is weaker because of the strength of the currency.
Overall, the statement continues to suggest that the RBNZ is
likely to cut rates in the near future because of the deterioration in
inflation expectations, the strong NZD and deterioration in the global
outlook. Moreover, it is also evident that in the RBNZ views most of the
risks to the outlook as being to the downside. With all this in mind,
we think it looks very likely that the RBNZ will cut rates. The timing
will depend on incoming data— particularly inflation expectations, the
level of the exchange rate and dairy prices—but we believe a cut at the
June meeting looks likely.”
