As expected, the Reserve Bank of New Zealand kept its benchmark cash rate on hold at 2.5 percent, mainly due to the uncertain global outlook and also a still sluggish New Zealand economy, following the country’s devastating February earthquake.
While most analysts had not expected a rate change at this review, many believe that the first rate rise will be between June and December 2012.
The cash rate has been kept on hold at a record-equalling low level after the central bank made an emergency 50 basis point cut in March to support the economy and sentiment after the deadly Feb 22 earthquake struck the country’s second biggest city, Christchurch.
The RBNZ’s repeated in October that the cash rate will have to increase at some stage when the global outlook improves and the impact on New Zealand diminishes.
Recent data has shown business and consumer sentiment still positive and off its lows for the years, with the Rugby World Cup, which New Zealand hosted in September and October, giving some boost to retail demand.
The RBNZ’s next cash rate review will be on January 26.
After an initial dip following the news, NZDUSD bounced from 0.77861 to 0.7806.
Robin Clements, Senior Economist at UBS commented:
“They allude to the unusual degree of uncertainty that surrounds the global outlook and they are in a situation where they can’t do anything but sit on their hands and wait and see what happens like everybody else. Probabilities are still in favour of interest rates going up later next year but there is a small risk the European situation deteriorates and does open up the possibility of a rate cut but that’s not the central view.”
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