-Graeme Wheeler, Reserve Bank of New Zealand Grovernor
The Reserve Bank of New Zealand did not provide any surprise to the markets, acting in line with expectations and leaving its official cash rate at 3.5%. The central bank highlighted that the economic growth has been faster than the trend in 2014, which has helped to lower unemployment. The expansion is supported by robust construction activity, high net immigration, as well as interest rates, which are still low by historic standards. It is predicted that the output growth will moderate in the years to come towards a more sustainable pace. The RBNZ reiterated its dissatisfaction with the strength of the New Zealand Dollar, citing the current level remains unjustified and unsustainable, but admitted that lower commodity prices as well as volatility in financial markets, which has recently significantly increased, have reduced some pressure on the local currency. The Kiwi has lost as much as 10% against the US Dollar from a recent high in July, largely due to a strengthening Greenback as the Fed concluded its quantitative easing. Nevertheless, the US central bank is not expected to raise interest rates any time soon, thus the New Zealand Dollar will remain elevated for some time. The RBNZ also said that the economy is adjusting to measures undertaken by the bank during the past year. Despite above-trend growth, consumer price inflation is currently at a low level of 1% on year in September. Yet inflation is seen to rise as the economy continues to strengthen. Thus, assessment period is appropriate before pondering further policy changes.
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