The RBNZ announces its decision on interest rates on 30 April.According to Barclays Research, it expects to it to keep the cash rate on hold at 3.5% and retain a neutral bias, where the last Monetary Policy Statement showed that the bank now expects rates to remain unchanged for the foreseeable future. The RBNZ has downplayed recent weak inflation as a product of the strong NZD, although we see this as more of a concern given underlying inflation of near 1% is now well below the 2% mid-point of the inflation target band. That said, the RBNZ has noted that it could cut rates if low actual inflation feeds into low ongoing inflation via a fall in inflation expectations and we see a risk it makes the same point next week (the RBNZ publishes its Q2 survey of expectations on 19 May). As for the currency, the real exchange rate remains very high and we think the bank will again label the currency as “unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals”.
The material has been provided by InstaForex Company – www.instaforex.com