The RBNZ is expected to keep the accommodative monetary stance unchanged for a considerable period of time, noted researchers at UOB Group.

Key Quotes

“Earlier today, the RBNZ left the Official Cash Rate (OCR) unchanged at 1.75% as widely expected and maintained that monetary policy will remain accommodative for a considerable period of time. Although the Bank acknowledges that the impact of new government policies remains “very uncertain”, it states that the government’s proposal to add employment to RBNZ’s mandate is unlikely to have a major impact on monetary policy”.

“Despite seemingly restrictive policies from the new government, the RBNZ kept to its growth forecasts, averaging 3.3% over the next 2 years. Due to a weaker NZD stoking consumer prices, it now expects inflation to hit the midpoint of its 1% to 3% target sooner, in 2Q 2018 and subsequently hold there with no changes to the longer term forecasts. Its projection for a rate hike is also brought forward by one quarter to 2Q 2019”.

“On the currency, with a 4.5% drop in the NZD TWI since the August meeting, Acting Governor Grant Spencer said the currency is in the vicinity of fair value. The TWI (current: 73.93) is now assumed to be 73.5 all the way to 4Q 2020”.