The Reserve Bank of New Zealand has left its key interest rate on steady once again at 3.5%, despite once again warning about the high value of the Kiwi dollar.
The central bank said the rate was not changed, despite a noticeable slowing in cost pressures in the economy and continuing high levels of growth of around 3% (much faster than we are seeing here).
“Annual CPI inflation is expected to fall to around zero in the March quarter and remain low over 2015, reflecting the high exchange rate, low global inflation, and the recent falls in petrol prices,” Governor, Graeme Wheeler said in a statement this morning.
“Inflation expectations appear to have fallen recently, and we will be closely monitoring the impact of this trend on wage and price setting behaviour, especially in the non-traded sector,” he said.
"The domestic economy remains strong. The fall in petrol prices has increased households’ purchasing power and lowered the cost of doing business. Employment and construction activity are strong.
"Net immigration remains high, and monetary policy continues to be supportive. The housing market is showing signs of picking up, particularly in Auckland.
“However, there are a number of factors weighing on domestic growth, including drought conditions in parts of the country, fiscal consolidation, reduced dairy incomes, and the high exchange rate,“ Mr Wheeler said.
And that led him to yet another complaint about the illogical forex market and the way it was valuing the Kiwi dollar.
"On a trade-weighted basis, the New Zealand dollar remains unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals. A substantial downward correction in the real exchange rate is needed to put New Zealand’s external accounts on a more sustainable footing," he said.
One way to kick the dollar lower might be to cut interest rates, but that has been ruled out.
"Monetary policy remains focused on ensuring inflation settles at 2 percent over the medium term. As the economy expands, inflation returns gradually towards the midpoint of the target range.
"Our central projection is consistent with a period of stability in the OCR. However, future interest rate adjustments, either up or down, will depend on the emerging flow of economic data,” Mr Wheeler said this morning.
For Australia’s big four banks, it’s somewhat confusing – on this side of the Tasman the Reserve Bank is in rate cutting mode as the economy refuses to budget out of low gear. Across the Tasman the central bank is in sit and hold mode.
Both economies have worrying property (housing) hot spots and even though the Aussie dollar has fallen sharply against the greenback, it remains high in trade weighted terms (as does the Kiwi dollar) because of the weakness of the euro and the yen against the US currency.
