In early 2014, the Reserve Bank of New Zealand (RBNZ) became the first major central bank to hike interest rates since the European debt crisis. Two years later, policymakers are in a sustained easing cycle.
A surging currency and a fiery housing market are weighing on the RBNZ as it debates just how much stimulus to unveil at Thursday’s meeting.
The key question isn’t whether the RBNZ is going to cut, but whether their stimulus will be enough to assuage concerns about the persistent softness in inflation, according to economists at Westpac Bank.
Three weeks ago, the central bank held a special economic assessment update in which it said “further policy easing will be required” for consumer price inflation (CPI) to hit its 1-3 percent target range. An appreciating currency has hindered price increases, with the kiwi dollar around 6 percent higher than the central bank’s expectations, Westpac noted.
Year-to-date, the kiwi is more than 5 percent higher against the greenback while CPI has been unchanged at 0.4 percent on-year since January. In fact, annual CPI readings have registered gains of fewer than 1 percent since the December 2014 quarter.
