RBNZ is clearly dovish, but data remains resilient – Standard Chartered

Jonathan Koh, economist at Standard Chartered, explains that for the New Zealand economy, its Reserve Bank (RBNZ) pivoted to an explicit dovish bias at its March meeting, noting that the balance of risks is tilted to the downside and that its next move is more likely to be a cut.

Key Quotes

“This pivot has clearly opened a window for rate cuts (even as early as May), as this is a significant dovish shift versus the February statement, where the RBNZ noted that there were upside and downside risks and the next direction of the official cash rate (OCR) move could be up or down.”

“In his 29 March speech about the new monetary policy framework (in which decisions will now be made by a committee of seven, versus one previously, effective 1 April 2019), Governor Orr reaffirmed his dovish stance during the Q&A session. He noted that he was comfortable with the market reaction in the form of the NZD heading lower after the OCR statement release.”

“We believe the data remains resilient, however, and would attribute any risk of cuts mainly to the RBNZ’s dovishness. The dovish bias may also potentially be maintained throughout the year without rate cuts. Private consumption momentum has been picking up, the labour market is healthy and inflation is close to the 2% mid-point target.”

“We expect private consumption and government spending to continue to support growth in 2019 and global growth to stabilise in H2-2019. While we forecast a slightly negative output gap, we do not think this warrants policy rate cuts, unless labour-market and inflation data deteriorate or global growth slows further.”