Highlights from the Reserve Bank of New Zealand statement on monetary policy:
- Growth remains moderate but mixed for main trading partners
- Export prices for New Zealand’s main products have continued to increase
- Fiscal consolidation and ‘high exchange rate’ will partly offset domestic strength
- High exchange rate particular headwind for tradeables, RBNZ ‘does not believe it is sustainable in the long run’
- RBNZ expects to start withdrawing stimulus in 2014
- Becoming unnecessary to keep key rate at 2.50%
- Lowers 2014 annual inflation forecast to 1.5% from 1.9%
- Economic expansion has considerable momentum
“The bank will increase the OCR as needed in order to keep future average inflation near the 2% target midpoint,” Wheeler said in Sept.
That compares to rate increases “will likely be required” in 2014. “It is becoming unnecessary to maintain the current degree of monetary stimulus.” He dropped a comment saying NZD strength would give him greater flexibility on the timing and magnitude of hikes.
The RBNZ forecast for 3-month bills is 3.10% in Q2 2014 compared to 2.70% now, which is a hint at how much they see rates rising. Most economists and the swap market expect a hike by March.
There was no effort to scale back expectations of aggressive rate hikes in 2014 and the New Zealand dollar is rallying but the market might be overlooking the significantly lowered inflation forecast.
