The Reserve Bank of New Zealand released the forecast of interest rates from a one-year record low due to the negative risks of the economic outlook.
Rates will be kept steady at 1.75 percent which is already expected, although the change in timing could raise the rates for the first time in the policy despite the image of an accommodative major central bank of Japan. According to the RBNZ governor, Adrian Orr, said that the rates will be maintained from 2019 to 2020, longer than the previous statement in May.
This was unexpected for the market that induced a sharp decline on the New Zealand kiwi, which dropped by more than ⅔ of 1 percent against the greenback as the lowest rate in more than two years. The growth of the gross domestic product has slowed down in the past year. The central bank added the fiscal and monetary stimulus, as well as, higher net exports which is anticipated to boost growth but the “risks to the growth outlook are to the downside”, he added.
Over the past year, the central bank tightened their policies and the employment is close to the maximum sustainable level whereas inflation is still below the 2 percent target. Although, there are also some early indicators of escalating inflationary pressure.
The updated forecast of the central bank will likely be higher in three months to September next year, 12 months after the prediction in May.