NZD: RBNZ Governor’s Speech on Post-Interest Rate Policy Outlook
RBNZ Monetary Policy meeting outcome is Holding the interest rates at 5.50% and the rates are sufficient for current scenario. Over tightening measures will lead to hard landing, So we approach for Soft landing in the inflation side versus rate hikes. NZ Dollar moved down after the holding of interest rates today.
RBNZ Governor Adrian Orr addresses press after holding steady at 5.50% in February.
NZDUSD is moving in Descending channel and market has fallen from the lower high area of the channel
Key Quotes from RBNZ Press Conference:
– Discussed a rate hike.
– Consensus on sufficient rates.
– Concerns about easing inflation despite grown inflation.
– Domestic price pressures easing as anticipated.
– Low productivity remains a challenge.
– Central banks may need higher rates than expected.
– Expect competition among banks on mortgage rates.
– Asymmetric reaction function toward inflation risk.
– Increased confidence in outlook compared to November.
– Currently in a disinflation period.
– Economy faces a soft landing scenario.
NZD: RBNZ Governor Orr Maintains Official Cash Rate at 5.5%
RBNZ Monetary Policy meeting outcome is Holding the interest rates at 5.50% and the rates are sufficient for current scenario. Over tightening measures will lead to hard landing, So we approach for Soft landing in the inflation side versus rate hikes. NZ Dollar moved down after the holding of interest rates today.
Reserve Bank Holds OCR at 5.5%, Hints at Potential Earlier Cut
Reserve Bank Governor Adrian Orr has maintained the official cash rate at 5.5%, aligning with expectations. However, a subtle shift in stance emerged, as new forecasts indicate a possible earlier cut than previously suggested.
In the Monetary Policy Statement (MPS), Orr noted that the New Zealand economy unfolded as anticipated over the past year. While core inflation and most measures of inflation expectations decreased, headline inflation remained above the 1 to 3 percent target band. This limitation on tolerating upside inflation surprises prompted a more balanced assessment of inflation outlook risks.
ASB chief economist Nick Tuffley observed a less hawkish tone, contrasting with the November MPS. The OCR track was revised down slightly in the near term, reaching a peak of 5.6% (previously 5.69%), with little change in the long term. The revised track suggests a possibility of an OCR hike in 2024, consistent with potential cuts around the second quarter of 2025.
The forecast indicates that inflation is expected to return within the 1-3 percent target band by September 2024, reaching the 2 percent mid-point by the end of December 2025, albeit slightly later than in the November projections.
ASB maintains its expectation that the Reserve Bank of New Zealand (RBNZ) will implement an OCR cut in November.
The New Zealand dollar and wholesale interest rates experienced a significant decline following the announcement, perceived as less hawkish than anticipated.
Post-announcement, the New Zealand dollar dropped to US61.20c from US61.80c, while the two-year swap rate, influencing home mortgage rates, decreased to 5.05 percent from 5.21 percent.
The central bank presented a somewhat somber global economic outlook but highlighted potential benefits for New Zealand.
EURNZD has broken Descending channel in upside
Global economic growth remains below trend and is expected to slow further in 2024. This subdued environment will contribute to a moderation in New Zealand’s import price inflation.
China’s economic outlook was notably poor compared to recent historical norms, according to the RBNZ committee.
There were general concerns about global growth, with the possibility that central banks might need to maintain policy interest rates at restrictive levels longer than reflected in financial market pricing to meet inflation targets.
Geopolitical and climate conditions were identified as additional risks to inflation.
Despite these concerns, the central bank signaled a reluctance to implement a rate cut anytime soon, emphasizing the need for the OCR to remain at a “restrictive level for a sustained period” to achieve the 1 to 3 percent target for headline inflation, typically measured by the Consumers Price Index (CPI). Annual CPI-measured inflation stood at 4.7 percent in the final quarter of 2023.
The intricate relationship between the OCR and bank rates, impacting those who have recently refinanced a mortgage, underscores the challenge of precisely determining the extent and speed of their influence.
The RBNZ led the charge in raising interest rates amidst pandemic-driven inflation, but it could be among the final central banks to implement rate cuts.
Currently, our annual inflation rate is at 4.7 percent, surpassing figures in Australia (4.1 percent), the United Kingdom (4 percent), the US (3 percent), and the Eurozone (2.8 percent).
According to Dimitris Valatsas, Chief Economist at New York-based Aurora Macro Strategies, the United States is likely to initiate rate cuts later this year, with the European Central Bank expected to follow suit.
The Reserve Bank conducted research to analyze the impact of changes in the OCR on bank rates.
According to their findings, a 1 percent change in the OCR typically results in an average movement of 0.34 percent in two-year mortgage rates within one month.
Initial market assumptions, until a few weeks ago, suggested that rate hikes were complete, and inflation was under control. However, unexpectedly robust labor market data has caused a delay in expectations for rate cuts.
NZD: RBNZ Holds Rates at 5.5%, Takes Less Hawkish Stance
RBNZ Monetary Policy meeting outcome is Holding the interest rates at 5.50% and the rates are sufficient for current scenario. Over tightening measures will lead to hard landing, So we approach for Soft landing in the inflation side versus rate hikes. NZ Dollar moved down after the holding of interest rates today.
The Reserve Bank of New Zealand maintains interest rates at 5.5%, signaling a less hawkish stance than anticipated. This decision marks the fifth consecutive meeting with unchanged rates. While the bank previously hinted at a potential rate increase, the market widely expected no adjustments in the February meeting.
NZDUSD is moving in Descending channel and market has fallen from the lower high area of the channel
Despite a more positive outlook for inflation risks, the RBNZ sees minimal chances of inflation falling within its 1% to 3% target range in the short term. This expectation is likely to prolong higher interest rates in New Zealand.
The RBNZ anticipates annual consumer price index inflation to align with its target range by the third quarter of 2024. The central bank emphasizes the necessity of ongoing restrictive monetary policy to mitigate the risk of rising inflation expectations while avoiding instability in various economic factors.
Acknowledging challenges like high interest rates, persistent inflation, and weak offshore demand, the RBNZ notes their continued impact on the New Zealand economy, contributing to subdued inflationary conditions.
In response to the decision, the New Zealand dollar experiences a 0.8% decline, as the RBNZ’s tone is perceived as less hawkish than expected. The central bank does not indicate any forthcoming increases in interest rates.
While the RBNZ had implemented a cumulative 525 basis points hike in its official cash rate from August 2021 to May 2023, being among the first major central banks to address post-COVID inflation, disruptions from major cyclones in early 2023 affected their inflation-curbing plans.
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