Increases in wage growth and non-tradable inflation together with a weaker local dollar helped by a surprise 50 basis point cut in August, aided the Reserve Bank of New Zealand’s (RBNZ) decision.
Wednesday’s call not to cut startled doves, sending the kiwi NZD=D3more than 1% higher to $0.6422. If gains are sustained, this would be biggest one-day percentage rise since late January.
“We expect interest rates to remain low for a long time and it’s a global phenomenon,” RBNZ Chief Economist Yuong Ha told reporters. “We’ll keep watching the data and that will drive our decisions from here and we’ll do what’s required for that.
However, business sentiment remains subdued despite the policy easing. Economists expect at least one more cut to 0.75% as growth in the $200 billion economy is yet to pick up.
Orr said the fact that analysts were again surprised by the RBNZ decision on Wednesday reflected deeper market uncertainties about the economy, and was not an attempt to catch investors off-guard.
“Today’s decision shows that the RBNZ is not afraid to stare down financial markets,” said Dominick Stephens, chief economist at Westpac, which changed its call twice in the days leading up to the decision. “The RBNZ is certainly open to a February cut, depending on what happens to the data.”
“The Reserve Bank of New Zealand sounded cautious when it left rates on hold today but we believe that a deterioration in the economy will force the bank to 0.5% by early next year,” Capital Economics analyst Ben Udy said in a note.
Wednesday’s rates hold echoed Australia’s central bank, which kept policy unchanged at its meeting last week, having already delivered three rate cuts this year to a record low of 0.75%.