Kiwi slides as NZ central bank retains inflation outlook, neutral rate bias
- Author: Anthony Vega May 12, 2017,
May 12, 2017, 6:51
This could embolden the central bank to adopt a more hawkish tone in future rate meetings. The statement also indicated that "developments since the February Monetary Policy Statement on balance are considered to be neutral for the stance of monetary policy" which further downplayed economic gains.
Wheeler defended the neutral stance, saying the bank hasn't seen significant wage pressures and that growth was slower than expected through the latter half of past year, meaning there were fewer capacity constraints than anticipated.
That stance put the RBNZ at odds with a number of economists, who expect it will have to raise rates earlier than 2019.
The New Zealand dollar sank to an nearly one-year low and its Canadian counterpart by roughly half a per cent on Thursday as domestic concerns outweighed a bounce in oil prices for the commodity-focused currencies. On the other side, the RBNZ has revised down its forecasts of domestically-driven (non-tradables) inflation over the next two years. Downside risks to growth outlook include possibility that consumers curb spending as housing market cools; RBNZ also concerned banks could tighten credit standards, hurting residential investment.
"These effects are temporary and may lead to some variability in headline inflation over the year ahead". However, there are some aspects of the RBNZ's forecasts that concern us. Still, gross domestic product rose 2.7 percent in the fourth quarter from a year earlier - less than the RBNZ and most economists expected. It is now at its lowest level since early June past year.
New Zealand's economy expanded at a healthy clip through 2016, supported by record immigration and booming tourism and construction. Four tip a rate rise in early 2018, and swaps data late Wednesday showed a 69 percent chance of an increase in the first quarter.
"The credit cycle is certainly buying the RBNZ time". He did, however, indicated that forecasts can be wrong in which case adjustments to monetary policy would be justified. "We continue to pencil in a first hike in May next year", said ANZ in a research note. The pair now trades below the level but has scaled back above the April low of 0.6848 to potentially indicate a lack of selling pressure.
"Premature tightening of policy could undermine growth, causing inflation to persistently undershoot the target midpoint", the RBNZ said in its Monetary Policy Statement. Strong trendline support is seen at 0.6820, while the pair finds immediate resistance at 0.6939 (20-DMA).
At midday, the NZD index was down 1.6%.