RBNZ leaves it cash rate on hold at 5.5%, as expected

Reserve Bank of New Zealand meeting is a policy review, not a full Monetary Policy Statement; there are no fresh economic forecasts or briefings being issued.

Statement from the Bank:

• Restrictive monetary policy has significantly reduced consumer price inflation, with the Committee expecting headline inflation to return to within the 1 to 3 percent target range in the second half of this year.
  The decline in inflation reflects receding domestic pricing pressures, as well as lower inflation for goods and services imported into New Zealand.
• Labour market pressures have eased, reflecting cautious hiring decisions by firms and an increased supply of labour.
• The level of economic activity, including business and consumer investment spending and investment intentions, is consistent with the restrictive monetary stance.
• Current and expected government spending will restrain overall spending in the economy. However, the positive impact of the pending tax cuts on private spending is less certain.
• Some domestically generated price pressures remain strong. But there are signs inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions.
• The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.

I bolded that wee part above.

• Committee expecting headline inflation to return to within the 1 to 3 percent target range in the second half of this year

If that’s the case why wouldn’t we expect a rate cut soon? I think the RBNZ agree, judging by this:

• The Committee agreed that monetary policy will need to remain restrictive. The extent of this restraint will be tempered over time consistent with the expected decline in inflation pressures.

The easy to read version would be ‘if inflation goes down, rates go down’.

NZD/USD lower.

—

Background to this is here:

• RBNZ policy decision today – “market looks positioned for a more dovish message”

• New Zealand – RBNZ shadow board recommends the Reserve Bank keeps OCR at 5.5% on Wednesda
• RBNZ Monetary Policy Review due Wednesday – “not expecting a whole lot”

• Reserve Bank of New Zealand policy meeting this week – preview (on hold widely expected)
• Reserve Bank of New Zealand policy meeting – rates to be left on hold

This article was written by Eamonn Sheridan at www.forexlive.com.