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The Reserve Bank of New Zealand is the latest central bank that is going to deliberate on any potential changes to its monetary policy, later this week. The Monetary Policy Committee (MPC) of the RBNZ will gather early on Wednesday morning and the prevailing market forecasts do not project any drastic changes to the underlying late to be implemented at the current rate.
The interest rate was already reduced two times this year, the most recent reduction being during the MPC’s last meeting on the 7th of August when the rate was cut with 50 basis points from 1.50 per cent to its current level at 1.00 per cent. This was the single most significant cutback of the rate since March 2011, which in itself attests to the RBNZ's adamant stance on the necessity for a more accommodative approach towards monetary policy. It is precisely because the last reduction was so substantial in size, that economists and analysts expect the RBNZ to give more time to these changes in the structure of the monetary policy to influence the broader economy.
“In New Zealand, low interest rates and increased government spending will support a pick-up in demand over the coming year. Business investment is expected to rise given low interest rates and some ongoing capacity constraints. Increased construction activity also contributes to the pick-up in demand.” [source]
Meanwhile, Business Confidence has continued to deteriorate following the last monetary policy meeting, which indicates the need for more time of adjustments.
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On the other hand, inflation has jumped to 1.7 per cent in the second quarter of 2019 from the previous level of 1.5, which demonstrates the improving price stability in the country. Regardless, the observed inflationary pressures continue to be below the RBNZ’s target level of 2 per cent, which signifies the spare capacity in the economy that still has to be utilized.
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Overall, the downside risks to growth continue to strain the global economy and the prolonged disputes between the US and China maintain the condition of global trade uncertainty, so all of these factors are likely to weigh in on the ultimate decision of the RBNZ on Wednesday. The MPC is likely to comment on the development of the situation but is not expected to implement any drastic changes to the monetary policy at the current rate.
The NZDUSD has been struggling with mounting bearish pressure since the RBNZ cut the interest rate on the 7th of August, and the pair has been depreciating since then. Currently, the NZD/USD is trading at around 0.62600, which is a level that was last reached in September of 2015.
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