WELLINGTON, Sept 10 (Reuters) - New Zealand's central bank
left interest rates unchanged at 2.5 percent on Thursday for the
third consecutive review and maintained its tone with a renewed
pledge to keep them low until late 2010 as the economy starts to
emerge from recession.
The Reserve Bank of New Zealand said the door was still open for more rate cuts if needed, but dropped its reference to reassess policy settings in the last review in July.
Sixteen of 17 economists in a Reuters poll expected no change, and markets had priced a less than 10 percent chance of a rate rise.
************************************************************
KEY POINTS:
- RBNZ says OCR (official cash rate) to stay at or below the current level until latter part of 2010
- RBNZ says patchy recovery underway, medium-term growth outlook weak
- RBNZ says strong NZ dollar, house price rise threaten recovery.
- Click on for official text.
COMMENTARY:
BRENDAN O'DONOVAN, CHIEF ECONOMIST, WESTPAC
'The explicit easing bias has gone, it's pretty much neutral with a small dovish tone.
'The markets will probably respond to that fact by having to crank up their rate hikes later in the projection period, because the bank will continue to keep them low for a long time.
'Interestingly the growth forecasts are virtually unchanged, the better domestic and international indicators have been offset by the higher exchange rate track.'
BERNARD DOYLE, SENIOR ECONOMIST, GOLDMAN SACHS JBWERE
'A little bit surprised that it has kept the explicit easing comment, but aside from that it's a fair reflection of where we sit with a little bit more acknowledgement of a recovery in the economy, otherwise the RBNZ would have looked a little bit out of touch.
'But clearly they are not convinced about the sustainability.'
PHILIP BORKIN, ECONOMIST, ANZ-NATIONAL BANK
'The bank's still holding an easing bias, so they still hold concerns over the sustainability of recent activity, and it suggests to us interest rates will be on hold until the latter part of 2010; we see no reason to disagree with the bank on this.'
ROBIN CLEMENTS, SENIOR ECONOMIST, UBS
'The bottom line is what they've said in their assessment, that is the economy needs monetary policy support for some time, and clearly they're still concerned about the medium term prospects for the economy.'
'It's two things, it's the shape of recovery as it's appearing with housing to the fore again, and the strong currency, which is going to be putting pressure on exporters.'
MARKET REACTION:
- The New Zealand dollar fell around 20 points after the announcement to $0.6935/40. Bank bill futures were a touch weaker. The one-year swap rate was steady at 3.09 percent.
LINKS:
- The Reserve Bank of NZ Web site is: www.rbnz.govt.nz
- For all New Zealand news and data, 3000 Xtra users can click on
BACKGROUND:
- A Reuters poll last week showed analysts narrowly favouring a start to the RBNZ tightening cycle in the second quarter of next year, followed by sometime in the third quarter.
- Financial markets have priced in a 10 percent chance of a rate rise in March, and fully priced in a rise by mid-year.
- Last month RBNZ Governor Alan Bollard said the economy was recovering, but the quality of the recovery was important and he wanted to avoid a return to 'borrow and spend' consumer behaviour, which contributed to the last downturn.
- RBNZ has previously said that New Zealand needs to have rates at levels that will attract domestic and foreign investors to lend.
- New Zealand has been in recession since the start of 2008, and a Reuters poll has a preliminary forecast that the New Zealand economy contracted 0.4 percent in the second quarter. See The Treasury department this week said it believed the economy has started growing again in the third quarter. See
- Annual inflation rate slowed to 1.9 percent in the second quarter. The RBNZ is required to keep headline inflation between
1
3 percent over the medium term.
- Other central banks have held their rates in recent reviews, with the Reserve Bank of Australia at 3 percent, the U.S. Federal Reserve at 0 to 0.25 percent, the European Central Bank at 1 percent, and the Bank of Japan steady at 0.1 percent.
((Wellington newsroom tel +64 4 471-4234, fax +64 4 473-6212
wellington.newsroom@reuters.com)) Keywords: NEWZEALAND ECONOMY/RATES (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.
The Reserve Bank of New Zealand said the door was still open for more rate cuts if needed, but dropped its reference to reassess policy settings in the last review in July.
Sixteen of 17 economists in a Reuters poll expected no change, and markets had priced a less than 10 percent chance of a rate rise.
************************************************************
KEY POINTS:
- RBNZ says OCR (official cash rate) to stay at or below the current level until latter part of 2010
- RBNZ says patchy recovery underway, medium-term growth outlook weak
- RBNZ says strong NZ dollar, house price rise threaten recovery.
- Click on for official text.
COMMENTARY:
BRENDAN O'DONOVAN, CHIEF ECONOMIST, WESTPAC
'The explicit easing bias has gone, it's pretty much neutral with a small dovish tone.
'The markets will probably respond to that fact by having to crank up their rate hikes later in the projection period, because the bank will continue to keep them low for a long time.
'Interestingly the growth forecasts are virtually unchanged, the better domestic and international indicators have been offset by the higher exchange rate track.'
BERNARD DOYLE, SENIOR ECONOMIST, GOLDMAN SACHS JBWERE
'A little bit surprised that it has kept the explicit easing comment, but aside from that it's a fair reflection of where we sit with a little bit more acknowledgement of a recovery in the economy, otherwise the RBNZ would have looked a little bit out of touch.
'But clearly they are not convinced about the sustainability.'
PHILIP BORKIN, ECONOMIST, ANZ-NATIONAL BANK
'The bank's still holding an easing bias, so they still hold concerns over the sustainability of recent activity, and it suggests to us interest rates will be on hold until the latter part of 2010; we see no reason to disagree with the bank on this.'
ROBIN CLEMENTS, SENIOR ECONOMIST, UBS
'The bottom line is what they've said in their assessment, that is the economy needs monetary policy support for some time, and clearly they're still concerned about the medium term prospects for the economy.'
'It's two things, it's the shape of recovery as it's appearing with housing to the fore again, and the strong currency, which is going to be putting pressure on exporters.'
MARKET REACTION:
- The New Zealand dollar fell around 20 points after the announcement to $0.6935/40. Bank bill futures were a touch weaker. The one-year swap rate was steady at 3.09 percent.
LINKS:
- The Reserve Bank of NZ Web site is: www.rbnz.govt.nz
- For all New Zealand news and data, 3000 Xtra users can click on
BACKGROUND:
- A Reuters poll last week showed analysts narrowly favouring a start to the RBNZ tightening cycle in the second quarter of next year, followed by sometime in the third quarter.
- Financial markets have priced in a 10 percent chance of a rate rise in March, and fully priced in a rise by mid-year.
- Last month RBNZ Governor Alan Bollard said the economy was recovering, but the quality of the recovery was important and he wanted to avoid a return to 'borrow and spend' consumer behaviour, which contributed to the last downturn.
- RBNZ has previously said that New Zealand needs to have rates at levels that will attract domestic and foreign investors to lend.
- New Zealand has been in recession since the start of 2008, and a Reuters poll has a preliminary forecast that the New Zealand economy contracted 0.4 percent in the second quarter. See The Treasury department this week said it believed the economy has started growing again in the third quarter. See
- Annual inflation rate slowed to 1.9 percent in the second quarter. The RBNZ is required to keep headline inflation between
1
3 percent over the medium term.
- Other central banks have held their rates in recent reviews, with the Reserve Bank of Australia at 3 percent, the U.S. Federal Reserve at 0 to 0.25 percent, the European Central Bank at 1 percent, and the Bank of Japan steady at 0.1 percent.
((Wellington newsroom tel +64 4 471-4234, fax +64 4 473-6212
wellington.newsroom@reuters.com)) Keywords: NEWZEALAND ECONOMY/RATES (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.