RBNZ Keeps Low rates Amid Slackened Economic Growth

The Reserve Bank of New Zealand is expected to maintain the interest rates this week and there are no hints of monetary tightening in short-term given the subdued inflation and worsening global trade friction that further negates the outlook for the weakened economy.

They are also anticipated to maintain the interest rates by 1.75 percent on its review on Thursday as surveyed by Reuters on 16 economists.

Markets are also waiting for any adjustments by governor Adrian Orr on the monetary policy statements, who said to simplify the communication of the central bank when he took the position in March.

An analyst of Capital Economics said, “Orr may decide to simply tweak May’s statement or he may break with tradition and write a completely new statement,” They see that it more probable for the governor to maintain the rates again for some time amid the weakened GDP rates.

Major central banks had a problem with soft inflation despite the strengthening of the economy on solid global trade. It is now threatened by the trade friction concerning the  “America First” policies of President Donald Trump.

New Zealand also reacted to the headline inflation as it slowed down to 1.1 percent in the first quarter, not too far from the medium target range of 1 to 3 percent.

GDP growth slowed to 0.5 percent in the first three months this year, below the forecast of RBNZ, which could mean that the economy will be softer because of the cooling housing market and business sentiment.

There are more downside risks, which could have a hard time in reaching higher than trend rates growth from here, according to the senior economist of ANZ, Liz Kendall. The RBNZ will remain heedful until inflation has stabilized.

Meanwhile, we anticipate the RBNZ to stick the status and deliver a neutral statement with few significant changes by May as the risks changed slightly with the OCR put on hold at a longer time.