RBNZ to keep rates unchanged, take note of emerging risks – ANZ

ANZ analysts expect the Reserve Bank of New Zealand (RBNZ) to keep the official cash rate (OCR) unchanged at 1% next Wednesday and take note of risks associated with the new coronavirus. 

Key quotes

There are clear signs that the housing market is responding vigorously to previous cuts, fiscal policy is set to underpin the medium-term outlook, and core inflation pressures are rising. Inflation and the labor market are both in a good position. So the Reserve Bank will be comfortable going back to its familiar “wait and see” mode. 

Risks associated with the new coronavirus will be weighing on the RBNZ’s thinking and feature heavily in their discussion, if not the central forecasts. 

It is far too early to assess the impacts of the outbreak and associated disruption.

We expect some rather cautious wording in the MPS about emerging risks, potentially with a discussion of possible channels, notwithstanding considerable uncertainty.

Domestic developments would point to an upgrade to the RBNZ’s growth forecasts. But this is likely to be tempered somewhat by a near-term dent in exports and a more conservative outlook for commodity prices. 

The RBNZ cut rates by 50 basis points to 1% in August 2019 and has held rates unchanged ever since. The market pricing for RBNZ implies only a near-zero chance of easing on 12 February.