What will New Zealand's 'Wheeler of fortune' do?
UNLIKE the US Federal Open Market Committee's consistent message of delaying a rate hike, predictions of the Reserve Bank of New Zealand (RBNZ) hike or cut cycle are far from dull. RBNZ's surprising cut on its Official Cash Rate to 3.25 per cent on June 11 this year caught the market by surprise with more than half of market analysts getting it wrong. The New Zealand dollar, affectionately known as the Kiwi, depreciated 2.5 per cent and continued to drop to a five-year low against the greenback.
So is RBNZ back on a rate cut cycle after increasing rates four consecutive times last year? Let's look at the factors determining the stance that RBNZ governor Graeme Wheeler will take in the upcoming RBNZ rate decision on July 23.
Commodity prices: One reason for the central bank's flexible language was the mounting risk of deflation, arising mainly from a 60 per cent fall in the price of oil since the middle of last year. With the country being a net importer of oil, tumbling crude prices played a major role in driving inflation below the reserve bank's 2 per cent target.
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