RBNZ Hold Official Rates Steady

Economists are expecting that the Reserve Bank of New Zealand will maintain its official cash rate at 1.75 percent upon the publication of its monetary policy statement scheduled on Thursday. However, the schedule of future hikes appears to be dull until the new policies of the Labour-led government were already established. Either way, the rate increase still does not have specified time in the future. Most likely, the hike will happen at the end of 2018 while forecasts from the central bank show that the raise will hit at the end of 2019.

An upward pressure is expected on local monetary policy, particularly on interest rates from foreign regions since the bank aims to ease off remaining artificially low rates since the Financial crisis of 2007–2008.

In the previous week, the BOE implemented a rate hike after 10 years, raising from 0.25 percent to 0.5 percent. The Fed Reserve is known to lift its rates twice in 2017 and maintained within the range of 1 to 1.25 percent, however, some comments opposing the market expectations affected the rates and tend to increase again this December. In October, the European Central Bank mentioned that it plans to reduce the level of bond purchases for each month along with the leading yields of US 10-year bond that recently acquired 2.4 percent. Cameron Bagrie, ANZ chief economist, spoke about the slightly higher international signals compared with local rates.

On the other hand, the financial markets are dealing with the future of new policy targets agreement (PTA) between the Reserve Bank and the Government. As indicated in the contract, the bank is obliged to maintain the next annual inflation within the average range of 1-3 percent in the medium term. Its focus is to manage future average inflation around the target midpoint of 2 percent. The employment intends to expand the deal in order to create an adequate level of labor rates as part of its objective while the political party  NZ First discussed the policy revision.

The total inflation for the year came in at 1.9 percent issued in September but new guidelines of the administration regarding wages and regional fuel taxes might influence prices to push higher. The greater-than-anticipated jobs figures last week highlighted a tighter labor market coupled with upside risks to inflation and surprised the RBNZ. The Reserve Bank explained that it anticipated for interest rate trends from overseas, especially from the US 10-year bond yield that serves as the major influence towards domestic rates.

On Friday afternoon, the Kiwi dollar was down to US69.2c as the head of NZ First Winston Peters declared a coalition agreement last October 19.