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Bloomberg
New Zealand’s central bank (RBNZ ) left interest rates unchanged — defying widespread expectations of a cut — saying there are signs the domestic economy will stop slowing and that inflation will pick up. The local currency jumped.
“Economic developments since the August Statement do not warrant a change to the already stimulatory monetary setting at this time,†the Reserve Bank said after holding the official cash rate at a record-low 1%. “We will add further monetary stimulus if needed.â€
The RBNZ’s surprise move adds to evidence of a global policy shift after the Federal Reserve signalled a pause in late October and Australia’s central bank held steady last week; all three banks have cut rates by 75 basis points this year. New Zealand was first in the mini-easing cycle when it began lowering rates in May, and said today it wants to assess the impact of earlier reductions before adding further stimulus.
“We still think the bank remains too optimistic on the prospects for growth,†said Ben Udy, an economist at Capital Economics in Singapore. Udy correctly predicted the RBNZ would hold rates today, and expects the central bank to cut twice more next year to 0.5%.
The New Zealand dollar jumped three quarters of a US cent after the announcement. It bought 64 cents at 3:38 pm in Wellington, up from 63.35 cents before the statement. Two-year swap rates rose as much as 21 basis points and are currently trading 18 basis points higher at 1.22%.
New projections for the overnight cash rate continue to signal some chance of a cut next year.