The Reserve Bank of New Zealand (RBNZ) decided in favor of keeping rates unchanged on Wednesday in line with what the analysts had expected. The central bank also minimized the previous hints that rates could be cut moving forward if the economy fails to pick up. In its announcement on Wednesday, the bank remained hawkish regarding the monetary policy and the economy at large that saw massive gains in the local currency.
The central bank of New Zealand, however, hinted that the recent outbreak of Coronavirus in China can be expected to have an impact on New Zealand’s economy. But the effect, as per the RBNZ, is likely to be broadly contained.
Central Bank Remarked Positively Regarding Consumer Prices And Employment
Keeping rates at the record low of 1% in line with the economists’ forecast, the central bank also remarked positively regarding consumer prices and employment. Previous statements highlighting that further stimulus can be expected to be added in the upcoming months to fuel the economy were also removed in the announcement following the first policy meeting of the year.
According to the RBNZ, data from government departments reveal the Coronavirus impact to be evident on New Zealand’s economy for six weeks only. The central bank also expressed confidence in sufficient flexibility for policy adjustments if the virus casts a stronger than expected effect on the economy.
In its guidance for fiscal 2020, the central bank also anticipated rates to stay at 1%. Previously, RBNZ had forecast rates at 0.9% in 2020. The recent statement, therefore, served to remove the prospect of a rate cut in the upcoming months. Following the economic data on Wednesday, NZD (New Zealand dollar) gained traction in the forex market. It was last seen trading at $0.6460 against the greenback that marked a 0.9% increase for the day.
Rates To Remain Steady Unless Coronavirus Casts A Stronger Than Expected Impact On NZ Economy
New Zealand has deep business relations with the largest Asian economy. With suspended corporate operations and over 1,000 casualties driven from virus outbreak in China, the global health emergency is likely to weigh on New Zealand’s economy. The widespread travel ban may make it worse for New Zealand’s economic growth, Prime Minister Jacinda Ardern commented.
Chief Economist Dominick Stephens of Westpac also commented on the OCR (official cash rate) and Coronavirus situation that the central bank is likely to keep the rates unchanged for the rest of the year unless the health emergency turns into a more severe threat to the economy than previously estimated.