New Zealand - RBNZ keen for the dollar to weaken further

The Reserve Bank of New Zealand used today’s decision to leave interest rates at 1.75% to emphasise once again that rates won’t be raised either this year or next. The financial markets are slowly getting the message, but there is still plenty of scope for market interest rate expectations to fall further and for the New Zealand dollar to weaken, perhaps from US$0.70 now to around $0.60. The repetition of the phrase in the policy statement that “monetary policy will remain accommodative for a considerable period” confirms that the RBNZ has not changed its view on interest rates since publishing projections at the February meeting that showed rates would be left at 1.75% until late 2019. Governor Wheeler put it more clearly in a speech at the start of March when he said that the most likely scenario is that the official cash rate will “remain at its current level over the next two years”. The financial markets are slowly heeding this warning, although they are still pricing in the possibility of one rate hike this year and a further two hikes next year.