Economy

NZ cenbank holds rates at 1.75 percent, says lower NZD would help

NZ cenbank holds rates at 1.75 percent, says lower NZD would help”

New Zealand's National Party emerged from the General Election with the largest number of seats at 58, followed close behind by Labour at 45, New Zealand First with 9, Greens with 7 and ACT at 1 - resulting in no clear majority and thus a hung parliament.

We think that this morning's RBNZ OCR review should pass without much market reaction, with the Bank's key policy message likely remaining unchanged, suggesting that "monetary policy will remain accommodative for a considerable period".

New Zealand's central bank held rates at a record low of 1.75 percent on Thursday as expected, saying that a lower New Zealand dollar would be helpful.

The New Zealand dollar edged lower to 72.10 USA cents after the statement from 72.20 United States cents just before.

We continue to look for a lower NZD over the coming year, as tight financial conditions, weaker growth, a housing market that has peaked and a policy rate more likely to go down than up in the next year all weigh on the Kiwi.

A appreciation of the New Zealand dollar in trade-weighted terms in 2017 has generated concern at the RBNZ over its potential to crimp exports and push down domestic prices, though the uncertainty surrounding the election has pulled the kiwi down a tad in recent weeks.

Mr Spencer said the economy grew in line with expectations in the second quarter, following relative weakness in previous quarters.

"Growth is projected to maintain its current pace going forward, supported by accommodative monetary policy, population growth, elevated terms of trade, and fiscal stimulus", the bank said in its statement.

It also again noted that house prices had cooled, although there remains a risk of resurgence in prices given population growth and resource constraints in the construction sector, it said.

"USD strength was a feature overnight against all and sundry excluding the NZD", said Cameron Bagrie, chief economist at ANZ Bank New Zealand, in a note. Indeed, Winston Peters, leader of the New Zealand First Party and kingmaker in this equation has since stated that no decisions will be made regarding coalition partners until the 7 of October, when the final voter tally is counted. He will remain in the position while the new government appoints a permanent governor.

He also said the economy would benefit from a lower exchange rate.



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