Indicator Digest - CMS Forex

Interest Rate Announcement

The policy boards of a country's central bank get together every 4-6 weeks, or sometimes every quarter (Switzerland) to decide on the country's base interest rate. The central bank's role is to limit inflation, while also maintaining stable economic growth. To heed of inflation, a central bank will raise rates; and during times of poor economic growth, the bank will work to lowers rates in order to stimulate growth.

Main Indicator: RBNZ Interest Rate Statement

Most Recent Release

July
23rd, 2008

Actual

Forecast

Revised Form

8.00%

8.25%

N/A

Provided by: Reserve Bank of New Zealand
Official Release: Statement

The Reserve Bank of New Zealand surprised economists and traders and lowered rates by a quarter point, causing a quick knee-jerk reaction of Kiwi selling. The NZD/USD fell almost 80 pips in the minutes following the release, testing 0.7415. The NZD/JPY plunged 100 pips to set a low near 80.00 in the minutes following the release.

From the Release: "The Reserve Bank today reduced the Official Cash Rate (OCR) from 8.25 percent to 8.0 percent.

Reserve Bank Governor Alan Bollard commented that “more unpleasant international news has emerged since the June Monetary Policy Statement, and there is a risk that the domestic economy will slow further. Moreover, the cost of funds raised abroad by banks has been rising in recent months as the international financial situation has deteriorated. Today’s cut will help to mitigate the effect of these increases on the actual borrowing costs paid by firms and households.

“Recent oil and food price increases mean that annual CPI inflation should peak around 5 percent in the September quarter of this year. However, we expect that inflation will return inside the target band in the medium term. The weaker economy is expected to reduce pressure on resources, making it more difficult for firms to pass on costs and for higher wage claims to be agreed.

“Economic activity is likely to remain weak over the remainder of 2008. The ongoing correction in the housing market, together with the very high oil prices, will limit household spending and constrain the extent of recovery. However, high export prices and an expansionary fiscal policy are expected to contribute to a gradual pickup in activity through 2009.

“Consistent with the Policy Targets Agreement, the Bank’s focus will remain on medium-term inflation. In this regard, it is important to note that monetary policy has been reasonably tight for some time, and is now restraining activity and medium-term inflation pressures. Provided that the outlook for inflation continues to improve and there is no excessive exchange rate depreciation, we would expect to lower the OCR further.”

Next Release Date: September 10th 2008, 17:00 EST

Table of Past Data

	6/6	7/25	9/12	10/24	12/5	1/23	3/5	4/23	6/4	7/23

Actual	8.00%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%	8.00%
Forecast	7.75%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%
Previous	7.75%	8.00%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%	8.25%
Revised From	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A

Past Releases

June
4th, 2008

Actual

Forecast

Revised Form

8.25%

N/A

Provided by: Reserve Bank of New Zealand

The Reserve Bank of New Zealand held rates at 8.25% as anticipated, but also sounded more dovish. CPI Inflation is still lingering, and is expected to peak at 4.7% annually in the September quarter. The expectation is for inflation to calm down in the medium term. However, the language was stronger in regards to weakening growth. Bollard explained in today's press release:

"The outlook for economic activity is now weaker than in our previous Statement. We project little GDP growth over 2008, and only a modest recovery thereafter, largely reflecting a weaker household sector. Government spending and personal tax cuts will provide some offset to this lower growth but will also add to medium-term inflation pressure.

Consistent with the Policy Targets Agreement, the Bank’s focus will remain on medium-term inflation. Provided the economy evolves in line with our projection, we are now likely to be in a position to lower the OCR later this year, which is sooner than previously envisaged."

The market equated the statement to a high probability of a rate cut later this year as inflation calms. The NZD/USD immediately fell about 100 pips in the hour following the statement. Inflation has been keeping the bank from lowering rates. As the focus now is shifting away from that, a rate cut is now back on the table.

April
23rd, 2008

Actual

Forecast

Revised Form

8.25%

N/A

Provided by: Reserve Bank of New Zealand

RBNZ Governor Alan Bollard reiterated the widely accepted notion of weaker global growth outlooks, and a declining housing market, and deterioration of consumer and business sentiments. He added that the very dry summer the country has just experienced put strain on production. These factors all lead to the concern of short-term inflation. Much like the ECB, the RBNZ is concerned about price and cost pressures. On the bright side, Bollard noted a strong labor market, and high commodity prices that helped export growth. Therefore, the bank decided to hold the Overnight Cash Rate (OCR) at 8.25%. He concluded:

"...We see significant downside risk to future activity but upside risks to inflation. A further risk to the outlook is the persistently strong New Zealand dollar which, while helping moderate headline CPI inflation, remains a drag on export growth.

Given this outlook, we expect that the OCR will need to remain at current levels for a time yet to ensure inflation outcomes of 1 to 3 percent on average over the medium term."

March
5th, 2008

Actual

Forecast

Revised Form

8.25%

N/A

Provided by: Reserve Bank of New Zealand

Economic activity in New Zealand has receded a bit after a period of strong growth. Reserve Bank Governor Alan Bollard said:

"The outlook for economic activity has deteriorated somewhat since we reviewed the OCR in January. The main reasons are weaker prospects for world growth, tighter credit conditions, a sharper-than-expected slowing in the housing market, and recent dry weather conditions. On balance, we now expect GDP growth of around 2 percent over the next three years."

Despite downside risks, Bollard also mentioned that labor costs, additional fiscal stimulus, and high inflation expectations underpin an upside to inflation risk. Therefore, there won't be a rate cut anytime soon.

January
23rd, 2008

Actual

Forecast

Revised Form

8.25%

N/A

Press Release from the Reserve Bank of New Zealand

From the statement:

"While the housing market continues to cool, the labour market remains tight, domestic income growth is still strong, especially from dairy, and core inflationary pressures persist...

We will be watching these developments [deterioration in the outlook for the United States and European economies] closely, particularly their implications for the Asian and Australian economies and for world commodity prices."

December
5th, 2007

Actual

Forecast

Revised Form

8.25%

N/A

Reserve Bank of New Zealand Press Release

October
24th, 2007

Actual

Forecast

Revised Form

8.25%

N/A

In announcing the decision to keep rates steady at 8.25%, Reserve Bank Governor Alan Bollard said that the outlook for policy remains "broadly consistent with the view outlined in the September Monetary Policy report. The labor market remains tight, domestic income growth continues to expand on the back of strong commodity prices, and core inflationary pressures remain." He did cite signs of a slowing housing market as a downside risk to the economy. Also, the Bank believes that even though "turbulence in the global financial markets has eased somewhat, considerable uncertainty remains."

September
12th, 2007

Actual

Forecast

Revised Form

8.25%

N/A

Allan Bollard noted that the recent credit problems and heightened risk aversions added uncertainty but expects the impact to be contained. He did mention a temporary increase in inflation risk, but assured it will "not affect price- or wage-setting behavior" The previous OCR hikes will likely limit the inflation and is also starting to cool off domestic spending, especially in terms of household borrowing. Inflation risk will be closely monitored.

July
25th, 2007

Actual

Forecast

Revised Form

8.25%

8.00%

N/A

One more rate increase. Reserve Governor Alan Bollar said, "we think the four successive OCR increases we have delivered will be sufficient to contain inflation." He also reiterated the continuing economic strength, tightened labor market, and higher commodity prices especially in dairy products. Also, he warned that the high New Zealand dollar is "not sustainable medium term"

June
6th, 2007

Actual

Forecast

Revised Form

8.00%

7.75%

N/A

RBNZ Governor Alan Bollard mentioned continuing growth in household sector, housing market, consumer confidence, business investment, and employment, adding notable increase in government spending. Tight employment and last 6 month's dairy price rocketing have been reinforcing inflation. The Official Cash Rate was increased to achieve medium run inflation of 1 to 3 percent.