Robert Carnell, chief economist at ING, notes that the Reserve Bank of New Zealand (RBNZ) has cut the rates by 50bps to 1.0% and the accompanying statement to today’s decision does acknowledge the better labour market data, and even that inflation remains within range though below the mid-point of the 1-3% target (latest 2Q inflation was 1.7%, up from 1.5% in 1Q19).
Key Quotes
“In keeping with concern over the state of the real economy, there are a number of somewhat perplexing references to weak GDP – the latest release of which was for 1Q19, which is now very dated. Either the RBNZ has some insight into the 2Q figure due on 19 September, which is possible, but still a long way off, or they are imputing a lot of transmitted weakness from the challenging global conditions – namely trade war. This seems a sufficient excuse to justify a 25bp rate cut against a mixed domestic/ external backdrop, but it still doesn’t deliver a very compelling case for a double-barrel 50bp cut.”
“Uncertainty may well weigh on New Zealand’s business investment decisions in the months ahead to deliver a weaker 2Q19 GDP result. That would merit a second 25bp rate cut then. But it is hard to make that judgment now and raises the prospect that even today’s 50bp of easing may not look like enough later on this year.”
“Not surprisingly, the NZDUSD has taken quite a blow from this policy action, dropping to 0.6423 before pulling back a little.”
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