In a move which was widely anticipated New Zealand’s central bank has announced a 25bps reduction to 1.75% three months after a 25 bps reduction in August. Westpac’s Imre Speizer said the statement accompanying the decision indicated a shift from an easing bias to a neutral one. He also noted the market’s response “was moderately hawkish.”
Governor Graeme Wheeler cited price falls in the tradables sector which have flowed from a strong exchange rate. Tradables are goods and services which can be imported or exported and therefore are subject to both foreign and domestic competitive pressures. “The exchange rate remains higher than is sustainable for balanced economic growth and, together with low global inflation, continues to generate negative inflation in the tradables sector.” The RBNZ is quite blunt about its hope for the New Zealand currency, stating, “A decline in the exchange rate is needed.” This is not the first time the Bank has engaged in the dark central bank art of jawboning. This latest reference to the exchange rate is an exact repeat of the phrase used in the statement accompanying the August rate reduction.
The Bank also was not shy is pin-pointing a source of future systemic shocks. “House price inflation remains excessive and is posing concerns for financial stability. Although house price inflation has moderated in Auckland, it is uncertain whether this will be sustained given the continuing imbalance between supply and demand.” In light of these concerns, another rate reduction is somewhat of a mystery.
For the full statement click here.