Comments from Reserve Bank of New Zealand Assistant Governor John McDermott (these are from an interview he gave late yesterday in Wellington, New Zealand (McDermott heads the bank’s economic department):
- “The terms of trade could be at a turning point, we’re certainly getting prices for dairy falling”
- “The New Zealand dollar is a commodity currency. It should move and if people were pricing it right, now is the time for it to be moving down”
- “The financial markets haven’t really moved the currency too much, yet its fundamentals have dropped a bit, and we really want them to focus on that point”
- “We were trying to highlight that point. The FX market should be looking at this.”
On the upcoming July meeting:
- “There’s a lot of news to come” (ahead of the the July 24 rate decision) “and we’re going to absorb that before we make that call.”
- He said the July decision will be “absolutely” data-driven
- Said the bank expects to raise its benchmark rate by another 50 basis points this year … “it would take more than what we can see at the moment” for it to deviate from that path
- “It’s not impossible to change our path, but it would have to be something else we’re not yet anticipating,”
- “We want to get interest rates more to a neutral level. This is our base plan. If the data comes in a bit stronger, we’ll push it a bit faster, if it comes in a bit weaker we’ll take more time.”
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For me, his message is very, very clear – they will keep on the hike path unless there is some surprise deterioration in the data. Governor Wheeler said it clearly yesterday too: To be blunt – We would like to see lower currency, higher longer term interest rates
