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Home » RBNZ To Leave OCR Unchanged At 2.5%, Acknowledge Stronger-Than-Expected Domestic Developments

RBNZ To Leave OCR Unchanged At 2.5%, Acknowledge Stronger-Than-Expected Domestic Developments

It's almost certain that the RBNZ will leave the OCR unchanged at 2.5% in July. While domestic economic developments have improved significantly since the last meeting, risks that global economic and financial conditions will surprise to the downside are still high. Meanwhile, strength in New Zealand dollar has been providing some tightening effects, thus reducing the urgency of an official rate hike. That being said, the more likely timing for an increase in interest rate would be in 4Q11.
GDP growth jumped to +0.8% q/q in 1Q11 from +0.5% a quarter ago as the impact of the February earthquake in Christchurch was milder than feared. Major contributing factors to growth were strong manufacturing activities, rise in household consumption and robust exports. Construction activities contracted during the period but it should recovery towards the end of the year as boosted by rebuilding efforts after the earthquake. In coming months, rises in housing prices and consumer sentiment should continue to support household spending.
 
Headline inflation accelerated to +1% q/q in 2Q11 from +0.8% in the prior quarter. The reading exceeded RBNZ's June forecast of +0.7% rise. From a year ago, CPI rose to +5.3% y/y from +4.5% in 1Q11. Much of the inflation pressure came from high fuel and food prices but was partly offset by strong NZD.
Although EU finance ministers outlined measures to contain the sovereign debt crisis in the Eurozone, the problems remain far from resolved. Implementation of the plans and success of austerity measures to reduce deficits remained highly uncertain. We expect the central bank will closely monitor how the situation evolves and take into account the impacts on New Zealand's growth outlook. Moreover, debt problems in the US as well as possible slowdown in Chinese economic growth will also affect New Zealand's monetary decision.
 
In the accompanying statement, we expect the RBNZ will acknowledge improvements in domestic growth but stress that risks in global economic outlook remain. Policymakers will continue to warn that appreciation in NZD is having negative effects on some of the tradable sector, constraining rebalancing of the New Zealand economy.
 

 

 

Special Reports | Written by ActionForex.com | Jul 25 11 03:51 GMT