By Mantik Kusjanto
WELLINGTON, Oct 29 (Reuters) - New Zealand's central bank said on Thursday it expected to hold interest rates at a record low at least until July, quashing speculation an economic rebound would lead to tightening as early as January.
The Reserve Bank of New Zealand (RBNZ) dropped its easing bias and left the benchmark rate at 2.5 percent as expected. The signal the bank was in no rush to hike sent the New Zealand dollar tumbling and swap rates felling the most in six months.
A string of data -- retail sales, house sales and prices, consumer and business confidence -- has pointed to a rebound in the economy, which emerged from recession in the three months to June 30 after five straight quarters of contraction.
RBNZ Governor Alan Bollard said the economy was not yet out of the woods.
'In contrast to current market pricing, we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010,' Bollard said in a statement.
He had previously committed to keeping rates steady until the 'latter part' of next year, but the rephrasing suggested to some economists that a rate hike is now envisaged as early as July instead of perhaps the fourth quarter.
The central bank cut rates seven times between July last year and this April by a total of 575 basis points to help the battered economy.
For a related graphic double click: http://graphics.thomsonreuters.com/109/NZ_RTS1009.gif
KIWI DOLLAR FALLS, SWAPS DOWN SHARPLY
The New Zealand dollar fell around a cent to a near four-week low of $0.7163 after the rate decision, before settling around $0.7180/90. Bank bill futures jumped as markets reduced the chances of an earlier rate rise.
But analysts said the uptrend in the currency, or the so-called kiwi, was not over yet.
'You have risk reduction across the board,' said Thomas Harr, a currency strategist at Standard Chartered in Singapore. 'This is a correction but not a trend reversal. For now, the uptrend in the kiwi has not really changed.'
The kiwi touched a 15-month high of $0.7635 last week but has since slipped back on broad profit-taking and risk aversion that has hit other higher-yielding currencies.
Interest rate swap yields fell up to 19 basis points, causing the yield curve to steepen as investors scaled back their rate hike expectations.
The one-year swap rate fell as much as 18.5 basis points, the biggest drop since the last rate cut in April.
'The statement is more dovish than the market has been anticipating,' said RBC Capital Markets senior economist Su-Lin Ong.
'Obviously it's clear rates can't stay at 2.5 percent for ever and the run of data in New Zealand suggests they will have to rise next year. We see the second quarter as likely timing for the first hike,' she added.
Markets, which had priced in 25-basis-point rate rises in both January and March, have now retreated to bet on a first hike in March.
A Reuters poll taken after the rate decision showed all 14 economists expected rates to remain on hold at the Dec. 10 review, with five expecting a hike in the first quarter of 2010, seven in the second quarter and two in the third quarter.
However, most expect aggressive rate hikes when the tightening cycle begins next year.
Domestic data this month also showed stronger-than-expected price pressures, with consumer prices rising 1.3 percent in the third quarter, but Bollard said inflation was expected to remain comfortably within the RBNZ's 1-3 percent target range in the medium term.
He warned that the strong kiwi, up 25 percent so far this year, has hampered exports and encouraged consumption, which could cause the current account deficit to widen again.
(Additional reporting by Gyles Beckford, Adrian Bathgate and Wayne Cole; Editing by Kazunori Takada)
((mantik.kusjanto@thomsonreuters.com; +64 4 471 4232; Reuters Messaging: mantik.kusjanto.reuters.com@reuters.net)) Keywords: NEWZEALAND ECONOMY/RATE (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
WELLINGTON, Oct 29 (Reuters) - New Zealand's central bank said on Thursday it expected to hold interest rates at a record low at least until July, quashing speculation an economic rebound would lead to tightening as early as January.
The Reserve Bank of New Zealand (RBNZ) dropped its easing bias and left the benchmark rate at 2.5 percent as expected. The signal the bank was in no rush to hike sent the New Zealand dollar tumbling and swap rates felling the most in six months.
A string of data -- retail sales, house sales and prices, consumer and business confidence -- has pointed to a rebound in the economy, which emerged from recession in the three months to June 30 after five straight quarters of contraction.
RBNZ Governor Alan Bollard said the economy was not yet out of the woods.
'In contrast to current market pricing, we see no urgency to begin withdrawing monetary policy stimulus, and we expect to keep the OCR at the current level until the second half of 2010,' Bollard said in a statement.
He had previously committed to keeping rates steady until the 'latter part' of next year, but the rephrasing suggested to some economists that a rate hike is now envisaged as early as July instead of perhaps the fourth quarter.
The central bank cut rates seven times between July last year and this April by a total of 575 basis points to help the battered economy.
For a related graphic double click: http://graphics.thomsonreuters.com/109/NZ_RTS1009.gif
KIWI DOLLAR FALLS, SWAPS DOWN SHARPLY
The New Zealand dollar fell around a cent to a near four-week low of $0.7163 after the rate decision, before settling around $0.7180/90. Bank bill futures jumped as markets reduced the chances of an earlier rate rise.
But analysts said the uptrend in the currency, or the so-called kiwi, was not over yet.
'You have risk reduction across the board,' said Thomas Harr, a currency strategist at Standard Chartered in Singapore. 'This is a correction but not a trend reversal. For now, the uptrend in the kiwi has not really changed.'
The kiwi touched a 15-month high of $0.7635 last week but has since slipped back on broad profit-taking and risk aversion that has hit other higher-yielding currencies.
Interest rate swap yields fell up to 19 basis points, causing the yield curve to steepen as investors scaled back their rate hike expectations.
The one-year swap rate fell as much as 18.5 basis points, the biggest drop since the last rate cut in April.
'The statement is more dovish than the market has been anticipating,' said RBC Capital Markets senior economist Su-Lin Ong.
'Obviously it's clear rates can't stay at 2.5 percent for ever and the run of data in New Zealand suggests they will have to rise next year. We see the second quarter as likely timing for the first hike,' she added.
Markets, which had priced in 25-basis-point rate rises in both January and March, have now retreated to bet on a first hike in March.
A Reuters poll taken after the rate decision showed all 14 economists expected rates to remain on hold at the Dec. 10 review, with five expecting a hike in the first quarter of 2010, seven in the second quarter and two in the third quarter.
However, most expect aggressive rate hikes when the tightening cycle begins next year.
Domestic data this month also showed stronger-than-expected price pressures, with consumer prices rising 1.3 percent in the third quarter, but Bollard said inflation was expected to remain comfortably within the RBNZ's 1-3 percent target range in the medium term.
He warned that the strong kiwi, up 25 percent so far this year, has hampered exports and encouraged consumption, which could cause the current account deficit to widen again.
(Additional reporting by Gyles Beckford, Adrian Bathgate and Wayne Cole; Editing by Kazunori Takada)
((mantik.kusjanto@thomsonreuters.com; +64 4 471 4232; Reuters Messaging: mantik.kusjanto.reuters.com@reuters.net)) Keywords: NEWZEALAND ECONOMY/RATE (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.