New Zealand Dollar Falls as RBNZ Holds Rates and Changes GDP View

Talking Points:

• The Reserve Bank of New Zealand left the official cash rate unchanged at 1.75 percent as expected
• The New Zealand Dollar depreciated against its major counterparts after the policy announcement
• RBNZ changed their growth outlook downward relatively and the CPI forecast remains unchanged

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The New Zealand Dollar depreciated against its major counterparts after September’s Reserve Bank of New Zealand monetary policy announcement crossed the wires. Unsurprisingly, the central bank left the official cash rate unchanged at 1.75 percent as expected which means the markets likely found something in their rhetoric that cooled hawkish bets.

A lot from the last statement was left unchanged with a few adjustments made here and there. Most notably, the growth outlook was revised from “expecting to improve going forward” to maintaining at its current pace. While not a negative outlook per se, it is a relatively downward adjustment. This followed the June quarter GDP release which saw growth in-line with expectations and not improving as the central bank estimated.

In addition, the CPI outlook was left untouched with headline inflation likely expected to decline in the coming quarters. Acting Governor Grant Spencer said that this reflects the volatility in tradeables inflation. The central bank reiterated that monetary policy will remain accommodative for a considerable period and that numerous uncertainties remain. RBNZ noted that policy may need to adjust accordingly.

With that in mind, weak CPI forecasts and a downward revision to the growth outlook can be an argument made to avoid raising rates sooner as opposed to later. This is relevant because the markets think that the central bank will hike at least once over the next 12 months. The RBNZ seems to have poured some cold water on those eager speculators.