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RBNZ to hold fire until Q2 2015 - Nomura

FXStreet (Bali) - According to Nomura FX Strategists, the RBNZ (due at 21 GMT) is unlikely to hike rates again before Q2 2015.

Key Quotes

"The Reserve Bank of New Zealand holds its next policy meeting on 10 September. At the 24 July policy meeting, the RBNZ increased its policy rate to 3.50%, the fourth consecutive rate hike this year, but signalled that the policy rate was likely entering a period of stability, saying that “it is prudent that there now be a period of assessment before interest rates adjust further towards a more-neutral level”. "

"However, the second part of the statement suggests that it is not the end of the hiking cycle. The RBNZ adds that “the speed and extent to which the OCR will need to rise will depend on the assessment of the impact of the tightening in monetary policy to date, and the implications of future economic and financial data for inflationary pressures”."

"The economic data since the July meeting has confirmed that the economy is slowing, as the previous rate hikes start to affect various sectors of the economy, and commodity prices, especially milk prices, have continued to decline. However, we believe that it is too early for the RBNZ to change its policy stance at this time. As such, we believe the RBNZ will keep its policy rate unchanged at 3.5% and reiterate that the central bank is taking a pause rather than ending the hiking cycle. "

"On the currency, we believe the central bank will take note of the recent depreciation in the NZD. As such, we think the RBNZ is likely to modify the first part of its comment on currency from the July meeting, which stated that “with the exchange rate yet to adjust to weakening commodity prices, the level of the New Zealand dollar is unjustified and unsustainable and there is potential for a significant fall”. "

"Our view remains that the RBNZ will keep rates unchanged for the rest of 2014 to better assess the impact of the previous rate hikes on the economy and that it is unlikely to hike rates before Q2 2015."

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