Monetary Policy Statement and OCR announcement – During the week, the Reserve Bank of New Zealand is seen keeping rates steady at 2.5%. In the statement released on October 29, Governor Bollard said that he expects to leave the Official Cash Rate (OCR) unchanged at the current level until the second half of 2010 and we do not see any reason for the New Zealand CB to raise it any time soon as inflation is expected to remain within the target range at the end of the reference period and a rate hike may further widen the current account deficit (the RBNZ projected the current account deficit at 5.8% in 2010 and 7% thereafter). Indeed, although an early rate hike may have the positive effect of dampening the increase in house prices, which should boost demand in the short term, it may strengthen the NZ Dollar upward trend, hence prompting a further widening of the current account deficit.
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