RBNZ releases July economic outlook
(25 July 2016 – New Zealand) The Reserve Bank of New Zealand (RBNZ) last week released its July update, providing the central bank’s latest guidance on monetary policy.
According to the RBNZ’s statement, the stronger New Zealand dollar is hurting the inflation outlook. Moreover, the central bank has signalled at further easing of policy, with reports suggesting that it will cut OCR during its August Monetary Policy Statement.
RBNZ added that global economic prospects have diminished despite stimulatory monetary policy and low oil prices. There continues to be considerable risks on the downside. The central bank also stated that financial market volatility has increased after the Brexit vote, while long-term interest rates have dropped.
On the domestic growth front, the central bank anticipates construction activity, solid inward migration, accommodative monetary policy and tourism to underpin the growth. But it mentioned that low dairy prices are hurting incomes in the dairy sector and are being a drag on farm spending and investment.
According to the statement, the trade-weighted exchange rate is 6 percent higher than had been assumed in the June statement that would exert additional pressure on exporters and lower tradables inflation. The RBNZ said that this would make it tough for them to meet inflation objective.
Additionally, the statement said house price inflation continues to be high and has become widespread throughout regions, adding to concerns regarding financial stability. Short-term inflation expectations continue to remain low.
The RBNZ has stated that monetary policy would continue to be accommodative and that additional policy easing would be needed to guarantee that future average inflation reaches close to the middle of the target range. It mentioned that it will keep a close watch on the emerging economic data.
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