RBNZ gives a nod to higher export prices and budget, but downgrades the construction outlook
The NZD has bounced moderately on the RBNZ statement, perhaps because it was not as emphatic in its comments on the exchange rate as it was earlier in the year, and acknowledged that the terms of trade were stronger and supporting growth. It also gave a nod to the budget situation, which is relatively strong and expected to provide some additional stimulus. On the other hand, the outlook for construction appears to have been downgraded.
There has been little impact on NZ rates in response to this statement. And overall the view appears largely unchanged from the long period of rates on hold as outlined in the May MPS.
In discussing the growth outlook, the RBNZ continued to say the “outlook remains positive,” but it removed high levels of “construction activity” as a driver, while adding “high terms of trade.” It continued to include “accommodative monetary policy” and “strong population growth”
Construction spending detracted from growth in the first quarter, and it appears that the RBNZ has downgraded its outlook for construction activity, suggesting this part of the economy may have now peaked after driving growth over the last five years or so.
The RBNZ added a note of strength expected from the government budget (announced in May) saying it “should support growth”.
The RBNZ returned to saying that a lower NZD would help rebalance growth, but tempered this with acknowledgment that some of the rise in the NZD since May was “partly a response to higher export prices.”
Their views on the exchange rate have softened since March when it last said “a further depreciation is needed to achieve more balanced growth”
By adding “high terms of trade” as a factor in its positive outlook for growth, it appears more sanguine with the current level of the exchange rate than some in the market may have anticipated.
It repeated its comments on the housing market, projecting moderation in prices to continue, with a caveat that there is a risk of resurgence given the continuing imbalance between supply and demand.
It repeated its comments on inflation, and its final sentence on policy guidance. Saying, “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”
This suggests there has been no significant change in its rates outlook since the May MPS. That is for a period of stable rates that extends into 2019.