RBNZ Intends To Pause Longer

At the January meeting, the RBNZ left the OCR unchanged at 2.5% and signaled that the pause might be longer than previously anticipated. Despite the seemingly more dovish statement, policymakers saw some improvements in household spending and the housing market. Policymakers believed it’s prudent to keep the OCR on hold at 2.5% but the words ‘for now’ were removed in the statement this time. This probably signals that interest rates will stay at current level longer than previously expected.

Policymakers acknowledged that the global economy remains ‘fragile’ and ‘risks to the outlook remain’. Yet, financial market sentiment has ‘improved slightly’. Concerning the domestic market, the economy has shown ‘modest growth’ with household spending and the housing market showing signs of ‘a limited recovery’. Reconstruction in Canterbury will have ‘a significant boost’ on the economy but the effect may be further delayed.

New Zealand’s headline CPI decelerated to +1.8% y/y in 4Q11from +4.6% a quarter earlier as driven by the sharp fall in vegetable prices. Although inflation has dropped below the midpoint of the RBNZ’s 1-3% target band, the RBNZ didn’t show much concern, stating that “inflation pressures remained well contained”. Yet, the central bank continued to warn that the recent appreciation of the New Zealand dollar has been reducing exporters’ returns.

Concerning monetary stance, the RBNZ left the policy rate unchanged at 2.5%. While this has been widely anticipated, the last sentence of the statement did send some signal of a more dovish RBNZ. At mentioned in the statement, ‘given ongoing uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent to keep the OCR on hold at 2.5%’. With ‘for now’ missing in the January statement, it appears that the central bank will now keep interest rate unchanged for a longer period of time

Article source: http://feeds.actionforex.com/~r/ActionInsightallReports/~3/F_20yIAVZQ0/