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Kiwi jumps after governor gives less-dovish MPS

The New Zealand dollar rose after Reserve Bank governor Graeme Wheeler kept his forecast track for interest rates almost unchanged and gave no signal there is room for the official cash rate to be cut.

The kiwi rose to 82.81 US cents from 82.49 cents immediately before the monetary policy statement was released. The trade-weighted index rose to 73.84 from 73.68.

Mr Wheeler kept the official cash rate unchanged at 2.5%, as expected. He called the strong kiwi dollar a "significant headwind" for the economy, saying he would like to see it lower "if we could achieve it without threatening the inflation outlook and financial stability".

While intervention was an options "we have yet to find a situation that meets all of our traffic lights". He trimmed his forecast for 90-day bank bills to 2.7% in the fourth quarter of 2013 from the 2.8% rate in the September MPS.

"The market was looking for something more dovish and maybe a greater opening for a rate cut," says Robin Clements, senior economist at UBS New Zealand. "They've now concluded that's not the case," he said, adding that on first impression the MPS was "reasonably balanced."

Still, Mr Wheeler will not rush to raise the OCR, forecasting a gradual rise in inflation to 2%, the mid-point of his target range.

"The outlook we have is for the OCR to remain stable for quite some period. Our projections don't show an increase until next year, being 2014," he told a briefing after the MPS was released.

The kiwi rose to 79.14 Australian cents from 78.86 cents before the report was released.

Mr Wheeler's statement highlights the contrast with Australia, where the central bank cut its cash rate to 3% this week, citing a weak labour market.


Comments and questions

For reasons well canvassed previously, the Reserve Bank should be thinking about increasing, rather than reducing, interest rates.

That would do wonders for the exchange rate.

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