- It is a busy week for central bankers. The Fed will release its rate decision a couple of hours before the RBNZ while the BoJ is expected to announce an increase of its monetary stimulus tomorrow
- Just like the Fed, the RBNZ is widely expected to leave its key interest rate unchanged as latest data suggests that the economic picture is somewhat improving compared to the early summer
- We anticipate that the RBNZ will cut rates at its December meeting
The Reserve Bank of New Zealand will communicate its interest rate decision shortly after the release of the FOMC’s statement. Just like the Fed, the RBNZ is widely expected to leave its key interest rate unchanged. The central bank already cut the OCR three times in a row over the summer in an attempt to cushion the effects of weaker global demand, which has seriously damaged the country’s export industries. However, the latest data suggests that the economic picture is somewhat improving compared to the early summer. Inflation has been stronger than anticipated by both the market and the central bank, but is still below the lower band of the target range of between 1%-3%; while growth figures are holding ground above the 2% for 2015.
However, looking at the fundamentals, we believe that another rate cut is justified, especially since its potential effects on the housing market will be mitigated by modifications to the Loan to Value Ratio restriction rule (LVRs) and to the minimum deposit threshold for investors in Auckland. Nevertheless, we think that Governor Wheeler will sit patiently on the sidelines this evening for two reasons, mainly. First, it is a busy week for central bankers. The Fed will release it rate decision a couple of hours before the RBNZ, while the BoJ is expected to announce an increase of its monetary stimulus tomorrow (Thursday, 29th Oct). Secondly, Governor Wheeler has emphasised many times that even if the central bank maintains a dovish bias, the decision to ease further will be data dependent. We therefore believe that the RBNZ wants to gather more information about the current economic situation and wait for its peers to make a move first, before bringing the official cash rate below the actual 2.75% level. However, we anticipate that the RBNZ will cut rates at its December meeting.”