RBNZ left OCR unchanged at 1.00% as widely expected. The overall statement was balanced with easing bias. However, there is no clear indication of another imminent rate cut. Most importantly, RBNZ noted that “developments since the August Statement had not significantly changed the outlook for monetary policy”. It suggests that the central bank is still on wait-and-see mode, for observing the impact of the -50bps rate cut in August.
Nevertheless, easing bias is maintained as “there remains scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain our inflation and employment objectives.” But the statement is seen more as urging the government for fiscal stimulus. And the level of monetary stimulus needed might depend on how much the government would do.
NZD/USD extends the recovery from 0.6255 after the release and hit as high as 0.6348 so far. Such recovery is seen as a corrective move and should be limited well below 0.6450 resistance. Break of 0.6255 is expected at a later stage and that would resume larger down trend to 0.6102 (2015 low).
BoJ Minutes: Appropriate to persistently continue with powerful monetary easing
In the minutes of July policy meeting, BoJ maintained that “economy was likely to continue on an “expanding trend” throughout the projection period through fiscal 2021, despite being affected by the slowdown in overseas economies. Exports were projected to “show some weakness” but would stay on a “moderate increasing trend”. The “continued relatively weak developments in prices” was largely affected by “deeply entrenched mindset and behavior based on the assumption that wages and prices would not increase easily”. Members still believed that CPI was “likely to increase gradually toward 2 percent”.
Four risks were outlined on economic outlook: (1) developments in overseas economies; (2) the effects of the scheduled consumption tax hike; (3) firms’ and households’ medium- to long-term growth expectations; and (4) fiscal sustainability in the medium to long term. Also downside risks from overseas were “significant”: (1) the consequences of protectionist moves — including the U.S.-China trade friction — and their effects, as well as (2) developments in the Chinese economy, including the effects of the aforementioned factor and (3) the possibility that the progress in adjustments in the global cycle for IT-related goods might take longer than expected.
On monetary policy, most members recognized that downside risks warranted attention. And, “it was appropriate to persistently continue with the current powerful monetary easing as the momentum toward achieving 2 percent inflation was being maintained with the output gap remaining positive”.
Full minutes here.