New Zealand rates to remain on prolonged hold

The Reserve Bank of New Zealand (RBNZ) left its key interest rate at 2.5% today, as anticipated, citing the deterioration in external conditions and escalation in financial market risks. The RBNZ still expects to be able to reverse the “insurance cut” made in March following the Christchurch earthquake as soon as sentiment recovers, and this is what the markets are currently pricing in too. However, we now think there is a good chance that persistent global problems will keep the RBNZ on hold throughout 2012.