Statement by Reserve Bank Governor Graeme Wheeler:
The Reserve Bank today left the Official Cash Rate unchanged at 2.5 percent.
Uncertainty about the strength of the global economy has increased due to weaker growth in the developing world and concerns about China and other emerging markets. Prices for a range of commodities, particularly oil, remain weak. Financial market volatility has increased, and global inflation remains low.
The domestic economy softened during the first half of 2015 driven by the lower terms of trade. However, growth is expected to increase in 2016 as a result of continued strong net immigration, tourism, a solid pipeline of construction activity, and the lift in business and consumer confidence.
In recent weeks, there has been some easing in financial conditions, as the New Zealand dollar exchange rate and market interest rates have declined. A further depreciation in the exchange rate is appropriate given the ongoing weakness in export prices.
House price inflation in Auckland remains a financial stability risk. There are signs that the rate of increase may be moderating, but it is too early to tell. House price pressures have been building in some other regions.
There are many risks around the outlook. These relate to the prospects for global growth, particularly around China, global financial market conditions, dairy prices, net immigration, and pressures in the housing market.
Headline CPI inflation remains low, mainly due to falling fuel prices. However, annual core inflation, which excludes temporary price movements, is consistent with the target range at 1.6 percent. Inflation expectations remain stable.
Headline inflation is expected to increase over 2016, but take longer to reach the target range than previously expected. Monetary policy will continue to be accommodative. Some further policy easing may be required over the coming year to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.
The Reserve Bank of New Zealand may lower rates in the future, a lower NZD may generate some imported inflation, and would help to balance dairy prices…
Things which may affect rate cut decision in the future:
- Global growth particularly around China.
- Global financial market conditions.
- Dairy prices.
- Net immigration.
- Pressures in the housing market.
The NZD fell against the U.S dollar, as fears of cutting rates in future, but the decline was halted by daily chart support 0.6428/0.6407 … so RBNZ statement was an opportunity to buy the NZD/USD on dips…Note that as long as 0.6404/0.64028 holds on a daily closing basis, the NZDUSD remains in a recovery mode and further upside towards the 0.6571 levels couldn’t be ruled out, above 0.6571 will extend recovery towards the 0.6680 levels, below 0.6404 faces a fall risk towards the 0.6350/0.6257 levels…(Minor resistance at 0.6527, above this level, may expose the 0.6571 levels)…
Conclusion: We need to keep an eye on the pair the upcoming days, If the key support 0.6407 holds, the pair is likely to continue in the current range….but….If support 0.6407 fails, further decline is very likely….