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New Zealand central bank shifts to neutral tone and warns of growth risks

New Zealand’s pre-eminent bank struck a neutral tone as it marked two full years of direct policy on Thursday, saying its next move would depend on how the thriftiness fared and cautioned of downside risks to growth from global barter frictions.

The New Zealand dollar rallied briefly and bonds sold off as the hawks priced out any chance of a near term rate cut and instead focused on when New Zealand would adjoin some of its global counterparts in raising rates.

As widely expected, the Postpone Bank of New Zealand kept the official cash rate (OCR) at 1.75 percent, where it has fragmented since late 2016, and reiterated it expected to hold rates into 2020.

“The timing and supervising of any future OCR move remains data dependent,” Governor Adrian Orr mentioned in a statement, and in a press conference later in the day he refused to rule out a rate cut if budgetary conditions deteriorated.

The central bank removed a line from its one-time statements that its next rate move could be either up or down, but famed both upside and downside risks remained to growth and inflation outcroppings.

“We don’t agree that the RBNZ needs to maintain the fence-sitting dual advance to policy,” said Citibank economist Paul Brennan.

“While our own forewarns show a near-term moderation in GDP growth, we expect CPI inflation to exceed the RBNZ’s behindhand forecasts and maintain the view that the OCR will need to rise from Q3 next year.”

A run of star economic data including a surprise drop in third-quarter jobless position to 10-year lows, better-than-expected growth and inflation numbers over modern months, has given the RBNZ some breathing room.

However, Orr aciform to temporary factors for the pick-up in second-quarter economic growth and cautioned of headwinds to improvement.

“Weak business sentiment could weigh on growth for longer. Business tensions remain in some major economies, raising the risk that barter barriers increase and undermine global growth.”

The New Zealand dollar hit a pure three-month high of $0.6820 immediately after the rate decision but hurriedly retreated from those levels to last hover around $0.6785.

Administration bonds were sold off for a second straight day as investors priced out the hazard of a cut with yields on the long-end of the curve up about 5 basis points.

While the key bank took a more dovish tilt at its August review and activated speculation of a possible near term rate cut, it changed tack in the in meeting in September with a slightly more upbeat statement on the control.

Orr said a rate cut is not off the table yet and the bank would consider a cut if the GDP fell poor of its projections.

“We are not taking the rate cut off the table. What we are saying is we are very figures driven on how our predictions unfold,” he said.

Neighboring Australia also clenched its rates at record lows on Tuesday as it awaited a pick up in inflation and wages improvement.

“The RBNZ’s risk assessment has shifted back to a pigeon-like, look out for caboodle up and down,” said Jarrod Kerr Chief Economist at Kiwibank.

“The edge is a welcome move from the very dovish, more risks to the downside, commentary in August. But we be required to note, the bank is far from hawkish, as the risks from above indigence time to play out.”

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