RBNZ on hold with symmetrical neutral commentary

RBNZ on hold with perfectly symmetrical neutral commentary

The RBNZ today left the cash rate unchanged at 8.25%, as expected, and delivered a very neutral commentary acknowledging the great uncertainty that surrounds the economic outlook in the wake of the financial market meltdown.

The RBNZ today delivered the definition of a neutral policy statement; outling both significant upside and downside scenarios, and then drawing a line through the center for a central projection.

As expected the bank's forecasting team included a severe downside scenario titled 'global downturn' - which incorporates a 'more significant slowing in world growth' and a greater impact on spending and confidence from the recent collapse of seven local finance companies. The downside scenario has the bank acting quickly by slashing rates as early as march 08. 'On the other hand', the RBNZ also maintained a bullish upside scenario which incorporates a world unharmed by market madness, strong domestic income growth (and the massive dairy payout), and a bounce back in housing that would have greater than forecast inflation and stimulate the bank into tightening policy as early as March 08. The central projection is in the middle, with rates on hold before coming off in 09.

Over the projection period growth has been revised down in first half. Induced by fall in housing market activity and business confidence. Growth was also revised up over the second half of the projection period due to larger dairy payout, lower NZD, and stronger labour income growth. The government was let off the hook somewhat in today's statement, but the fiscal splurge looming large on the horizon remains clear in the central banks numbers and will remain a concern.

In all, neutral commentary with the RBNZ not close to easing or hiking - they are doing what most central banks around the globe (excluding the Fed) and gauging the impact of the current crisis on the macroeconomy.

ENDS

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