(More Bank) – New Zealand's central bank could recognize the growing risk of interest rate cuts when it makes its first economic policy decision of the year.
Governor Adrian Orr is expected to keep the official money rate at a record high of 1.75% on Wednesday and report no change, but he could admit that it is increasingly possible to take more flexible measures as global growth is a concern. Traders have stepped up bets on a rate cut and now plan on 90% chance on a November break, data show.
"The RBNZ will reaffirm a data-driven" monitoring and waiting "position, even as the" worry "element intensifies," said Sharon Zollner, New Zealand Chief Economist at ANZ Bank in Auckland. "When global growth slows, the New Zealand economy will inevitably feel the chill, and the flow of data from China and Australia, which together account for 40% of our goods exports, has quickly turned to the south. "
The RBNZ will publish its decision at the new time at 14:00. in Wellington as he prepares for the formal establishment of an expanded policy committee later this year. Orr holds a press conference an hour later.
Globally, central banks are increasingly reluctant to raise rates in a context of slowing expansion and risks such as the US-China trade dispute with Brexit. The US Federal Reserve suspended its rate hikes, while the Australian Reserve Bank dropped its tightening bias this month as the fall in the real estate market weighed on the inflation outlook.
The RBNZ could do the same after the slowdown in New Zealand's economy in the second half of last year, as job growth and the housing market cooled. The benchmark 10-year benchmark yield dropped to a record low of 2.08% last week, prompting a rebound in Asian bonds as investors turned to lower-risk assets.
Economists say …
While it is unlikely that the RBNZ will adopt an explicit easing bias, economists believe that it could take a neutral stance by pushing its rate hike forecasts further into the future. .
The New Zealand chief economist of Westpac Banking Corp., Dominick Stephens, said he expects the new RBNZ OCR forecasts to be stable until the middle of 2021. In November, rates projected by the central bank would begin to rise from the third quarter of 2020. Westpac itself does not anticipate any rate changes until 2022.
"It's as far as the proverbial eye can see," said Stephens. "What we are saying in reality is that the prospects for ROC are balanced in the foreseeable future, with risks on both sides."
Jarrod Kerr, chief economist at Kiwibank, went further.
"Rather than pushing our call upward like most people, we are assessing the very real risk of rate cuts," he said. "We need to see how key developments abroad will unfold in the coming months, including talks between the US and China and Brexit. For now, interest rates are more likely to fall than to rise. "
ANZ's Zollner, which is already forecasting a reduction in RBNZ rates in November, said it was not urgent for the bank to change its position, as inflation is close to its 2% target and economy continues to grow.
"It's not a necessary part of our November Cup call that the RBNZ jumps so early on the dovish train," she said. "But we think the RBNZ will want to clearly indicate that it is aware of the emerging risks for growth and inflation prospects."
To contact the reporter on this story: Matthew Brockett in Wellington at mbrockett1@More Bank.net
To contact the editors in charge of this story: Nasreen Seria at nseria@More Bank.net, Chris Bourke
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