New Zealand Dollar Sinks as RBNZ Opens Door to Rate Cuts Ahead

Talking Points:

• RBNZ Says Not Considering Interest Rate Hikes, May Cut Instead
• New Zealand Dollar Declines Over 1% After RBNZ Rate Decision
• Key Policy Rate Left Unchanged at 3.50%, in Line with Forecasts

The New Zealand Dollar declined as much as 1.1 percent versus the US Dollar. The drop came after the RBNZ signaled it is not considering a rate hike and will cut borrowing costs instead should demand weaken and inflation settle fall short of levels consistent with the target.

The central bank left its policy interest rate unchanged at 3.50 percent, in line with expectations of economists surveyed by Bloomberg.The RBNZ has now kept rates unchanged for six consecutive meetings.

The bank continued to argue that the exchange rate is unjustifiably and unsustainably high. It added that “the appreciation in the exchange rate, while [New Zealand’s] key export prices have been falling, is unwelcome.”

Reserve Bank of New Zealand:

• Expects to keep rates stimulatory
• Not currently considering rate increase
• Would be appropriate to lower rate if demand weakens
• Would cut rate on weaker demand, less inflation pressure
• New Zealand Dollar unjustifiably, unsustainably high
• Currency gain as export prices fall is unwelcome
• Policy will focus on medium-term inflation trend
• Will continue to monitor, assess emerging flow of data