HSBC's RBNZ Observer: Sitting still watching the world

RBNZ Observer Update: Sitting still watching the world

No surprises from the RBNZ today. Rates are on hold while they watch the world. Given the lower than expected CPI, RBNZ assessed that underlying inflation is close to the middle of their target range. They still suggested that rates need to rise from here, but that this is highly conditional on the global scene and the impact that it may have on New Zealand. The risk is that the RBNZ sits still for longer than we previously expected, as global financial issues remain unresolved.

Facts - The RBNZ left rates on hold again today at 2.50%, as expected.

- The weaker than expected CPI print this week (0.4% in Q3, 4.6% annually) against the backdrop of continued global uncertainty made the decision to sit still easier.

Implications The decision to leave rates on hold today was generally expected, given the current state of global uncertainty and the risk that it has a significant impact on the outlook on growth in New Zealand.

However, as the Governor noted, 'if global developments have only a mild impact on the New Zealand economy, it is likely that gradually increasing pressure on domestic resources will require future OCR increases.'

This reflects that the RBNZ still has rates at exceptionally low levels, particularly in real terms, as it has yet to reverse the emergency settings put in place in March this year.

Bottom line Continued global market uncertainties kept the RBNZ on hold again today.

We still expect the RBNZ unwind the emergency setting for policy rates soon.

However, while our central view has been for a move by year-end, the risk is that they sit still for longer.

Paul Bloxham, Chief Economist (Australia and New Zealand) Luke Hartigan, Economist (Australia and New Zealand) HSBC Global Research Economics - Data Reactions

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