With all the fuss over the upcoming FOMC statement, you might be forgetting that the RBNZ has its own event lined up. Will they steal the show with an interest rate hike?
Unlike several major economies faced with the problem of shaky growth and the prospect of further central bank stimulus, New Zealand seems to be on more solid ground. After all, its recent data has mostly surprised to the upside or posted improvements. For one, business conditions have gotten better, as indicated by PMIs and sentiment indicators.
Inflation has also been healthy, with consumer and commodity prices rising in the past few months. Thanks to the recent 0.9% increase in CPI, annual inflation is now at 1.4%, safely within the central bank’s 1-3% target range.
Number crunchers are predicting a 30% chance of an actual interest rate hike in this week’s RBNZ monetary policy statement, as policymakers might be keen to keep further price pressures in check. However, others believe that the odds of tightening in their March statement are higher, as central bankers might wait for clearer signs of an economic recovery in the coming months.
Another factor that could prevent the RBNZ from hiking rates right away is the strength of the New Zealand dollar. Bear in mind that Wheeler isn’t shy to express his concerns about the Kiwi’s high levels and the potential negative impact on the country’s exports. Right now, NZD/USD is still trading at the top of its long-term range, testing resistance close to last year’s highs.
Given the downbeat global economic outlook in the recently held World Economic Forum in Davos, RBNZ Governor Wheeler and his men might decide to sit on their hands for now. With emerging markets expected to enter a slowdown, the last thing the RBNZ wants to do is to remove monetary stimulus too soon. Do keep your eyes and ears peeled for any hints on when the New Zealand central bank might be ready to hike rates, as these remarks could dictate the Kiwi’s direction in the near term.
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