RBNZ preview: The impact of interest rate cuts starting
2024-05-22
■ There is a high probability that the Reserve Bank of New Zealand (RBNZ) will maintain its policy interest rate at 5.50% during its committee meeting on the 22nd.
■ Focus on the start time of interest rate cuts, whether to maintain the previous policy of starting interest rate cuts from January to March 2025 and the financial policy report for the fourth quarter.
The Reserve Bank of New Zealand (RBNZ) will convene a Financial Policy Committee on the 22nd. In its previous statement on April 10th, RBNZ adhered to the position that "to alleviate supply capacity constraints and further reduce inflation rates, a tight monetary policy is needed" and expressed its understanding of the risks of inflation expectations in the meeting minutes. The year-on-year increase rate of the Consumer Price Index (CPI) for the first quarter, announced on April 17th, was 4.0%. Although it was significantly slower than the previous quarter (the same as 4.7%), it exceeded RBNZ's forecast (the same as 3.8% as of February). The Bureau of Statistics pointed out that housing and heating costs are the main driving factors for price increases, and the stickiness of inflation rates is vital. Compared to the previous quarter, the growth has accelerated to 0.6%, and the policy interest rate is likely to remain at a high level of 5.50% in 15 years, marking the seventh consecutive meeting.
The most concerning issue is the start time of interest rate cuts. In the interest rate futures market, the start time of interest rate cuts of 0.25% exceeded 40% at the committee meeting on August 14th, 55% on October 9th, and 61% on November 27th. In this situation, the first quarter unemployment rate announced on May 1st was 4.3%, an increase from the previous quarter (4.0%), employment decreased by 0.2% year-on-year, private sector wage growth slowed to 0.8%, and labor demand gradually eased. However, in December last year, the parliament passed a bill to remove "maximum employment" from RBNZ responsibilities. Considering the emphasis on "price stability" in financial policies, RBNZ may be cautious about starting interest rate cuts within this year. According to the quarterly monetary policy report (MPS) released in February, the CPI inflation rate will reach the central bank's target (1.0-3.0% year-on-year) in the July-September 2024 quarter (the same as 2.6%), and the median forecast (the same as 2.0%) in the October-December 2025 quarter. Whether to maintain the previous policy of starting interest rate cuts in the January and March quarter of 2025, as well as the upcoming new MPS.
■ Focus on the start time of interest rate cuts, whether to maintain the previous policy of starting interest rate cuts from January to March 2025 and the financial policy report for the fourth quarter.
The Reserve Bank of New Zealand (RBNZ) will convene a Financial Policy Committee on the 22nd. In its previous statement on April 10th, RBNZ adhered to the position that "to alleviate supply capacity constraints and further reduce inflation rates, a tight monetary policy is needed" and expressed its understanding of the risks of inflation expectations in the meeting minutes. The year-on-year increase rate of the Consumer Price Index (CPI) for the first quarter, announced on April 17th, was 4.0%. Although it was significantly slower than the previous quarter (the same as 4.7%), it exceeded RBNZ's forecast (the same as 3.8% as of February). The Bureau of Statistics pointed out that housing and heating costs are the main driving factors for price increases, and the stickiness of inflation rates is vital. Compared to the previous quarter, the growth has accelerated to 0.6%, and the policy interest rate is likely to remain at a high level of 5.50% in 15 years, marking the seventh consecutive meeting.
The most concerning issue is the start time of interest rate cuts. In the interest rate futures market, the start time of interest rate cuts of 0.25% exceeded 40% at the committee meeting on August 14th, 55% on October 9th, and 61% on November 27th. In this situation, the first quarter unemployment rate announced on May 1st was 4.3%, an increase from the previous quarter (4.0%), employment decreased by 0.2% year-on-year, private sector wage growth slowed to 0.8%, and labor demand gradually eased. However, in December last year, the parliament passed a bill to remove "maximum employment" from RBNZ responsibilities. Considering the emphasis on "price stability" in financial policies, RBNZ may be cautious about starting interest rate cuts within this year. According to the quarterly monetary policy report (MPS) released in February, the CPI inflation rate will reach the central bank's target (1.0-3.0% year-on-year) in the July-September 2024 quarter (the same as 2.6%), and the median forecast (the same as 2.0%) in the October-December 2025 quarter. Whether to maintain the previous policy of starting interest rate cuts in the January and March quarter of 2025, as well as the upcoming new MPS.