Unchanged monetary policy in New Zealand as RBNZ sees slowing economic activity; OCR stays at 0.25%
The Reserve Bank of New Zealand (RBNZ) was the only major central bank to release its monetary policy decision this week. The general consensus was that the bank would do nothing at this meeting, and it was true. However, the statement is still worth a look for anyone trading the New Zealand dollar (NZD).
Before analysing the statement, it’s worth mentioning that NZD pairs are tricky to trade on margin, so traders end up risking more on an NZD trade than they otherwise would.
Details of the RNBZ March 2021 Policy Statement
The central bank left the monetary policy unchanged, so the Official Cash Rate (OCR) stays at 0.25% and the Large Scale Asset Purchase (LSAP) was left unchanged. The RBNZ also doesn’t see inflation overshooting its 2% target, so its expectations were unchanged.
Despite a strong initial rebound, economic activity slowed down during the summer, even though New Zealand was one of the countries that handled the pandemic best. However, globalization takes its toll, and it’s difficult for economic activity to pick up until partner countries reopen fully.
New Zealand’s tourism industry accounts for a big share of its Gross Domestic Product (GDP). When tourism stopped, New Zealand and Australia opened a trans-Tasman travel corridor so that nationals could travel between the two countries. The NZD and the AUD were two of the best-performing currencies during the pandemic, partly because the two countries applied stricter measures than Europe or the USA.
The summer season started just in time to curb the virus’s spread, but the summer is about to end, and not enough vaccines are reaching the region. Consequently, the NZD will have a hard time advancing as the RBNZ and the Reserve Bank of Australia remain dovish.
In summary, the OCR remains unchanged, quantitative easing runs unchanged to a maximum of NZD 100 billion by June 2022, and economic activity is slowing.