Reserve Bank of New Zealand keeps Official Cash Rate at 1 percent

Reserve Bank Governor Adrian Orr

The NZD presents a quite respectable 1% yield - considering the average low rate environment - thereby preserving some carry appeal, which is set to fade for its closest peer, the Aussie dollar (we expect a Reserve Bank of Australia cut).

- Indicative broker rates for transfers: 1.9762-1.9882 find out more about this rate.

While the RBNZ held rates at 1% as expected in a Reuters poll of economists, the statement omitted a line used in previous policy statements that it would add further monetary stimulus if needed.

But not before a sluggish start to the new year has been overcome.

The Reserve Bank said economic growth "is expected to accelerate over the second half of 2020", and said the outlook for the economy was brighter amid increased infrastructure investment from the government. "GBP/NZD is down almost 1% already this morning, losing over two cents and flirting with the NZ$2.00 threshold".

Unless the sector shows signs of slowing the mood towards the New Zealand Dollar looks set to improve further over the weekend.

When asked about whether an "insurance cut" was considered by the policy committee to pre-emptively head off any virus hit to the economy, RBNZ Governor Orr said: "At this point, we didn't see a need for a cut in the OCR with regard to a specific event".

Any further signs of deterioration in the UK's growth figure, however, would prove Pound-negative as the British economic outlook continue to darken. While such a decision was widely expected by markets, the tone of the statement accompanying the policy announcement was more hawkish than market participants anticipated. "A very long six weeks away, we will all have a much better idea of both the near-term immediate impact, and the potential timeline and geographic spread of the epidemic. The OCR path they forecast today should not be seen as any kind of commitment in such a rapidly moving situation".

The virus has emerged as an economic threat just as New Zealand's inflation picture was firming.

This encouraged a greater sense of market risk appetite, benefitting the New Zealand Dollar as fears over the disease's ultimate impact on the global growth rate diminished.

Above: RBNZ cash rate history and assumptions for future levels. It rose against all major rivals in the morning session.

The New Zealand dollar was at 95.97 Australian cents from 95.99 cents at 5pm yesterday.

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