Asia FX muted, dollar fragile as CPI data boosts Sept rate cut bets
Investing.com -- The Reserve Bank of New Zealand (RBNZ) is expected to cut its cash rate by 25 basis points, bringing it down to 3.25%, at the conclusion of its meeting on 28th May.
This anticipated move comes as the nation’s economic recovery shows signs of faltering, with a weak labor market and a continued decline in underlying inflation. The bank’s decision is expected to signal an ongoing easing cycle.
The RBNZ’s previous decision to cut rates by 25 basis points at its April meeting was widely anticipated. The Bank has maintained its confidence about meeting its price stability mandate. It noted that future inflation expectations and the degree of spare productive capacity in the economy are consistent with annual Consumer Price Index (CPI) inflation remaining close to the target midpoint over the medium term.
The Committee has expressed concerns about the growing downside risks to its outlook, particularly in light of the global trade war. Despite these concerns, the New Zealand economy is believed to be better positioned than most others to navigate ongoing trade tensions.
The trade war is expected to have a modest impact on the outlook for inflation. Despite a revised year-end forecast for the price of brent crude, from $70 per barrel to $60 per barrel, the resulting fall in automotive fuel prices is estimated to reduce headline inflation by just 0.1 percentage points for the rest of the year. Given that energy only accounts for 3% of firms’ total input costs, any secondary effects are likely to be minimal.
According to Capital Economics, there is a compelling case for the RBNZ to provide further policy support. As such, the Bank is expected to cut rates by another 25 basis points at its meeting next week, a move that is fully priced into markets and anticipated by the analyst consensus.
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