NZD may benefit somewhat from the decision – Commerzbank

The Reserve Bank of New Zealand (RBNZ) holds its first regular meeting of the year on Wednesday. Economists at Commerzbank analyze how the decision could impact the Kiwi.

Is the RBNZ going to lower its forecasts?

Expectations seem to have calmed down somewhat. Both the Bloomberg consensus and the market expect rates to remain on hold. Earlier in the month things looked different. After a major local bank revised its RBNZ forecast towards further hikes, almost one more hike was priced in.

The decision should be interesting regardless of the policy rate. The RBNZ will release its quarterly monetary policy report, including new forecasts and the expected path of interest rates. There will also be a press conference to comment on the new projections.

Given inflation now seems to be falling, RBNZ could lower the interest rate path slightly. The decisive factor will probably be the extent to which it revises its interest rate and inflation forecasts downwards. However, given that it has been quite cautious in recent quarters and is unlikely to give the all-clear after a single quarter of better inflation, the correction is likely to be small. If this is the case, the NZD may benefit somewhat from the decision.