New Zealand Dollar: RBNZ seen on hold in September – Commerzbank

Commerzbank’s Volkmar Baur argues that softer New Zealand inflation data make a September rate hike by the Reserve Bank of New Zealand (RBNZ) unlikely after July’s move. While core inflation is easing and supports a pause, the central bank is expected to maintain a hawkish tone given Middle East risks, offering some near-term support to the Kiwi but with a weak economy weighing longer term.

Cooling inflation reduces near term hike risk

"In about two weeks, the Reserve Bank of New Zealand will hold its next monetary policy meeting, and based on the inflation indicators released this morning, it seems unlikely that it will raise interest rates for a second consecutive time following the July hike."

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"Although full inflation figures are released only once a quarter in New Zealand, Stats NZ publishes a Selected Price Index every month for about half of all prices, which typically reflects the trend in the full inflation figures very well. And this monthly index fell to 3.5% year-over-year in July, down from 4.9% in June."

"If we exclude the sharp rise in gasoline and diesel prices, the rate was actually only 2.2% in July, down from 2.8% in June. Global prices for oil and petroleum products were lower in July than in August. However, due to the collapse of the ceasefire and the renewed blockade in the Strait of Hormuz, a slight uptick in August is certainly to be expected. That said, the decline in the core rate in particular should be a source of satisfaction for the central bank."

"Positive figures for monthly aggregate credit and debit card sales, on the other hand, give reason to be confident that the economy will not suffer too severe a setback. After core sales (excluding sales at gas stations and for vehicles) had slowed sharply in June and were up only 0.4% year-over-year, they rose again by 3.5% in July."

"Overall, we therefore expect the central bank to use the decline in inflation as an opportunity to leave interest rates unchanged in September. However, in light of the renewed escalation in the Middle East, it will adopt a hawkish tone to keep all options open. This should provide some support for the kiwi in the coming weeks. The weak economic environment, however, is likely to continue weighing on the currency over the coming months."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)