As expected the Reserve Bank of NZ joined the Fed in sitting pat on interest rates this morning, but sent a signal that there will be a further cut or cuts to put more downward pressure on the value of the Kiwi dollar.
The warning on further rates came despite continuing pressure from strong property prices, particularly in the Auckland area, and solid economic growth in the year to June. From this morning’s statement the clear focus of the central bank is driving down the value of the NZ dollar which was trading around 73.50 US cents this morning
In a statement issued at 7am Sydney time, the RBNZ said in leaving its key rate steady on 2.0% that “Monetary policy will continue to be accommodative.”
"Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range. We will continue to watch closely the emerging economic data,” the central bank statement said.
"Weak global conditions and low interest rates relative to New Zealand are placing upward pressure on the New Zealand dollar exchange rate. The trade-weighted exchange rate is higher than assumed in the August Statement,” the RBNZ said this morning.
"Although this may partly reflect improved export prices, the high exchange rate continues to place pressure on the export and import-competing sectors and, together with low global inflation, is causing negative inflation in the tradables sector. A decline in the exchange rate is needed.”
"The central bank pointed out that inflation remains low, thanks to “continuing negative tradables inflation. Annual CPI inflation is expected to weaken in the September quarter, reflecting lower fuel prices and cuts in ACC levies.
“Annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, reduced drag from tradables inflation, and rising non-tradables inflation."
Second quarter GDP growth saw an annual rate of 3.6%. The bank said these were consistent with its growth expectations.
"Domestic growth is expected to remain supported by strong net immigration, construction activity, tourism, and accommodative monetary policy. While dairy prices have firmed since early August, the outlook for the full season remains very uncertain. High net immigration is supporting strong growth in labour supply and limiting wage pressure.
"House price inflation remains excessive, posing concerns for financial stability. There are indications that recent macro-prudential measures and tighter credit conditions in recent weeks are having a moderating influence,“ the bank said.
