RBNZ pushes out forecast for rate hike

Bloomberg

New Zealand’s central bank pushed out its forecast for an interest-rate increase to early 2021, disappointing investors looking for signs of a policy easing later this year and sending the
currency surging.
Reserve Bank Governor Adrian Orr left the official cash rate at 1.75 percent on Wednesday in Wellington and said he expects to keep it there “through 2019 and 2020” as subdued inflation continues to warrant supportive policy. However, the chances of a rate reduction haven’t increased, he said.
“We still see the outlook as balanced” for the OCR, Orr said in a media briefing. “What we are saying is it may stay at this level for longer based on our current projections, in large part
because of slowing global economic activity.”
New Zealand’s dollar jumped as much as 1.6 percent, buying 68.48 US cents at 5:20 p.m. in Wellington as traders pared bets on lower rates. There’s now about a 52 percent chance of a rate reduction by November, according to swaps data, down from 90% on February 12.
Orr did acknowledge that policy could yet be loosened, saying the next rate move could be up or down — a return to guidance used for much of last year before an explicit reference to a cut was dropped in November’s statement. Investors had ramped up bets on a quarter-point reduction by the end of 2019 amid signs the economy is losing momentum and after the jobless rate jumped more than expected.
“The RBNZ was either unwilling or unable to meet dovish expectations,” said Andrew Ticehurst, a rate strategist in Sydney at Nomura Holdings Inc. “Although a rate cut was not expected, market participants have observed recent dovish moves by many central banks.”
Globally, policy makers are growing more wary of raising rates amid slower expansion and risks such as the US-China trade dispute and Brexit. The US Federal Reserve has paused its rate increases, while Australia’s Reserve Bank this month abandoned its tightening bias as a slumping property market damped the inflation outlook.
The RBNZ’s projections today show a rate increase is now unlikely before the first quarter of 2021, compared with the third quarter of 2020 previously. The benchmark rate has been at 1.75 percent since November 2016.
“Trading-partner growth is expected to further moderate in 2019 and global commodity prices have already softened, reducing the tailwind that New Zealand economic activity has benefited from,” Orr said. “The risk of a sharper downturn in trading-partner growth has also heightened over recent months.”
Gross domestic product increased just 0.3 percent in the third quarter — missing the central bank’s expectation.