The NZ Reserve Bank has again left its key cash rate unchanged on 1.0% while again reserving the right to change rates, especially if the impact of China’s coronavirus crisis proves to be bigger than currently expected.
The statement issued after the bank’s monetary policy committee’s decision described the coronavirus outbreak as “an emerging downside risk.”
“We assume the overall economic impact of the coronavirus outbreak in New Zealand will be of a short duration, with most of the impacts in the first half of 2020.
“Nevertheless, some sectors are being significantly affected.
“There is a risk that the impact will be larger and more persistent. Monetary policy has time to adjust if needed as more information becomes available.
The statement pointed out that NZ employment “is at or slightly above its maximum sustainable level while consumer price inflation is close to the 2 percent mid-point of our target range.”
“Low-interest rates remain necessary to keep employment and inflation around target.”
That is a similar statement to what we saw last week from the Reserve Bank of Australia with the important exception that employment here is not anywhere near its “maximum sustainable level” and for that reason, the RBA will aim to keep rates as low as possible for as long as possible.
Kiwi consumer inflation is also higher than Australia’s CPI which is another reason why the RBA will be keeping rates low.
And unlike Australia where the outlook for this is clouded by the impact of the bushfires and the coronavirus, NZ’s central bank is expected a rise in the pace of activity as the year goes on.
“Economic growth is expected to accelerate over the second half of 2020 driven by monetary and fiscal stimulus, and the high terms of trade. The outlook for government investment is stronger following the Government’s announcements in December. There are also indications household spending growth will increase.
But not before a sluggish start to the new year has been overcome.
“However, soft momentum in economic growth has continued into early 2020. Slower global growth over 2019 acted as a headwind to domestic growth. In addition, competitive pressures and recent subdued business confidence have suppressed business investment,“ the RBNZ statement said.