Highlights for the RBNZ interest rates decision on Dec 10, 2014:
- Expect a significant drop in the New Zealand dollar
- Further policy moves dependent on data
- Some further increase in the OCR is expected to be required at a later stage
- Domestic demand has retained momentum
- Repeats that NZD remains unjustifiably and unsustainably high
- Modest inflation pressures suggest the expansion can be sustained for longer than previously expected with a more gradual increase in interest rates
- CPI inflation is expected to approach the 2 percent midpoint of the Reserve Bank’s target range in the latter part of the forecast period
- 2014 GDP estimate boosted to 3.2% from 3.1%
- 2015 GDP forecast unchanged at 3.5%
- Raises 2016 GDP forecast to 3.1% from 2.3%
- Raises 2017 GDP forecast to 3.1% from 2.5%
- Full Monetary Policy Statement
- Full statement from Wheeler
The bolded has lit a fire under NZD, which is up 125 pips since the decision to 0.7800. It seems the market was looking for a more-neutral bias and the jawboning isn’t having an effect.
The hiking bias was widely expected to remain but the market wanted more and the upbeat assessment of growth is a big surprise. It’s a Goldilocks scenario with lower inflation allowing the central bank to keep rates low and GDP high.
