The Monetary Policy Committee (MPC) of the Reserve Bank of New Zealand expectedly decided to maintain the interest rate in the country unchanged in February.
Earlier today the Committee reached a unanimous decision to preserve the rate at its current 1 per cent level, which is inlined with the consensus forecasts.
What surprised the markets, however, was the decidedly positive tone of the post-decision monetary policy statement that was released by the Committee.
“Economic growth is expected to accelerate over the second half of 2020 driven by monetary and fiscal stimulus, and the high terms of trade. The outlook for government investment is stronger following the Government’s announcements in December. There are also indications household spending growth will increase.”
Additionally, the MPC weighted on the potential impediments to growth that can be caused by the outbreak of the novel coronavirus in China. Somewhat surprisingly, the MPC acknowledged the threat; however, it did not consider it to be as detrimental as some local investors feared initially.
“The global economic environment has shown signs of stabilising and trade tensions have receded somewhat. However, the COVID-19 (coronavirus) outbreak is an emerging downside risk. We assume the overall economic impact of the coronavirus outbreak in New Zealand will be of a short duration, with most of the impacts in the first half of 2020.”
The new hawkish stance of the RBNZ has lifted some of the pressures that were weighing down on the kiwi, and as a result of that, the NZDUSD rallied by more than 1 per cent so far during today's trading session.
This revised monetary stance is likely to persist, which would continue supporting the stabilisation of the NZD, which has plunged considerably since the beginning of the new year.
NZDUSD 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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