Yahoo Finance RBNZ Holds Interest Rates Steady for Now
The Reserve Bank of New Zealand held rates steady again today at 5.5% for the third consecutive meeting in line with market expectations.
Following the meeting the bank said in Wellington that “Interest rates may need to remain at a restrictive level for a more sustained period of time.” However, it also noted that present policy parameters “are limiting economic activity and reducing inflationary pressure as necessary.”
There is some uncertainty though. The committee reaffirmed that there was a chance that activity and inflation won’t slow down as much as projected in the short term, in light of the fact that there are a number of ongoing challenges, one of which being increasing oil prices. It’s also expected that New Zealand’s export income will continue to suffer in the medium term as a result of a decrease in global demand, notably from China.
This latest decision also comes as New Zealanders prepare for a general election that will take place later this month, with the cost of living becoming a significant campaign subject for struggling Kiwis.
Impacts of an Impending Election
Early voting for the general election, which is scheduled for October 14th, started in New Zealand this past Monday. The conservative National Party, headed by Christopher Luxon, has been polling higher than the liberal Labour Party, led by current Prime Minister Chris Hipkins.
Sunday’s news that Prime Minister Chris Hipkins had tested positive for COVID-19 was an unwelcome blow to his already sluggish campaign. Aside from continuing certain commitments through Zoom, he claimed he would isolate himself for five days or until he returned a negative test.
After discussing the Treasury’s pre-election report, the RBNZs Monetary Policy Committee agreed that overall government expenditure will continue to fall as predicted, although by a smaller amount than had been anticipated. Members took notice of the significant increase in government spending expected over the medium term to meet the challenge of ensuring the resilience of critical infrastructure.
No matter who wins the election, fiscal policy might loosen, according to some analysts, and the Reserve Bank was statistically more likely to delay policy decisions until November.
According to calculations made by Westpac NZ, the likelihood of a policy shift by the Reserve Bank in the three months before an election is lower than what’s historically normal. At every given meeting, there was a 34% probability that the official cash rate would be modified, but that likelihood dropped to only 9% if the meeting occurred within 90 days of an election.
In a recent research note, Goldman Sachs analysts cautioned that a National-led government would raise mortgage rates beyond what would normally happen under Labour based on their proposed campaign policies. Westpac NZ’s local economists agree that the opposition party’s tax proposal will cause inflation, but they believe that the fiscal risks would be somewhat larger under a coalition headed by Labour.
Will Interest Rates Go Up Again This Year?
To achieve its inflation and employment targets, the bank acknowledged in its statement today that the cash rate will need to continue at its current level of 5.5% for slightly longer than was previously thought.
Although inflation dropped to 6.0% in the second quarter from a three-decade high of 7.3% observed last year, it is still much higher than the central bank’s target range of 1-3%. New inflation data will not be available until the 16th of October, when it’s expected that prices may have only cooled slightly to around 5.8% on an annualized basis.
According to the monetary policy review published with the rate decision, the central bank expects the official cash rate to stay at 5.5% for the remainder of this year, with a 40% possibility of an additional 25 basis point rise to 5.75% in 2024.
In a recent Reuters poll, all 27 analysts predicted that the Reserve Bank of New Zealand was going to maintain its official cash rate at 5.50% this week, and the majority also believes that the central bank will maintain this level until early to mid next year, when they predict that a reduction will be made.
After the decision, the New Zealand Dollar (NZD) fell 0.5% to $0.5877, extending its two-session decline in response to a rise in U.S. Treasury yields. It is now perilously near the September low of $0.5860, and a breach would place it in territory not seen since November of last year.
Disclaimer
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
ActivTrades Corp is authorised and regulated by The Securities Commission of the Bahamas. ActivTrades Corp is an international business company registered in the Commonwealth of the Bahamas, registration number 199667 B.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.
This article was originally posted on FX Empire
