Reserve Bank of New Zealand
- says more tightening needed
- says also agreed to commence the gradual reduction of the reserve bank’s bond holdings under the large scale asset purchase (LSAP) programme
- agreed it remains appropriate to continue reducing monetary stimulus
- some short-term economic disruption is expected given the current growing
covid-19
Covid-19
Covid-19 or the novel Coronavirus is a pandemic that has yielded wide ranging economic turmoil and volatility across financial markets in 2020. The first cases of Covid-19 were reported in Wuhan, China in late 2019. Since then, the virus has expanded globally, infecting millions worldwide. The virus has been extremely controversial, namely in the United States, which became heavily politicized during the 2020 presidential election. The Covid-19 pandemic is completely unprecedented in modern times, with the most recent example being the influenza outbreak in 1918. Financial markets and global economies were completely unprepared for the scope of the virus, causing massive shutdowns, unemployment, and other hardships in an effort to contain and mitigate the virus. How Has Covid-19 Affected Markets? Virtually every asset has in some way been affected by Covid-19. Early on, financial markets and equities collapsed, with the nadir coming in March 2020 in the United States and Europe. Widespread lockdowns led to an economic standstill, resulting in stimulus packages to help keep domestic economies functioning. The result of this has been a depreciation of currencies such as the US dollar, with the Federal Reserve printing billions of dollars to pare economic losses. Forex markets have since experienced historic levels of volatility, leading some to classify the Covid-19 pandemic as a Black Swan event. Financial markets have for the most part rebounded in 2020 at the time of writing, though many headwinds remain in terms of economic recovery. Presently, unemployment rates and other indicators remain problematic, and when coupled with rising rates of infection, portend additional monetary policy action or stimulus in both Europe and the US. At the time of writing there is no vaccine for Covid-19 though several companies such as Pfizer and Moderna are close to producing a viable vaccine.
Covid-19 or the novel Coronavirus is a pandemic that has yielded wide ranging economic turmoil and volatility across financial markets in 2020. The first cases of Covid-19 were reported in Wuhan, China in late 2019. Since then, the virus has expanded globally, infecting millions worldwide. The virus has been extremely controversial, namely in the United States, which became heavily politicized during the 2020 presidential election. The Covid-19 pandemic is completely unprecedented in modern times, with the most recent example being the influenza outbreak in 1918. Financial markets and global economies were completely unprepared for the scope of the virus, causing massive shutdowns, unemployment, and other hardships in an effort to contain and mitigate the virus. How Has Covid-19 Affected Markets? Virtually every asset has in some way been affected by Covid-19. Early on, financial markets and equities collapsed, with the nadir coming in March 2020 in the United States and Europe. Widespread lockdowns led to an economic standstill, resulting in stimulus packages to help keep domestic economies functioning. The result of this has been a depreciation of currencies such as the US dollar, with the Federal Reserve printing billions of dollars to pare economic losses. Forex markets have since experienced historic levels of volatility, leading some to classify the Covid-19 pandemic as a Black Swan event. Financial markets have for the most part rebounded in 2020 at the time of writing, though many headwinds remain in terms of economic recovery. Presently, unemployment rates and other indicators remain problematic, and when coupled with rising rates of infection, portend additional monetary policy action or stimulus in both Europe and the US. At the time of writing there is no vaccine for Covid-19 though several companies such as Pfizer and Moderna are close to producing a viable vaccine.
Read this Term health challenge. - says economic capacity pressures have continued to tighten
- headline CPI
inflation
Inflation
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Inflation is defined as a quantitative measure of the rate in which the average price level of goods and services in an economy or country increases over a period of time. It is the rise in the general level of prices where a given currency effectively buys less than it did in prior periods.In terms of assessing the strength or currencies, and by extension foreign exchange, inflation or measures of it are extremely influential. Inflation stems from the overall creation of money. This money is measured by the level of the total money supply of a specific currency, for example the US dollar, which is constantly increasing. However, an increase in the money supply does not necessarily mean that there is inflation. What leads to inflation is a faster increase in the money supply in relation to the wealth produced (measured with GDP). As such, this generates pressure of demand on a supply that does not increase at the same rate. The consumer price index then increases, generating inflation.How Does Inflation Affect Forex?The level of inflation has a direct impact on the exchange rate between two currencies on several levels.This includes purchasing power parity, which attempts to compare different purchasing powers of each country according to the general price level. In doing so, this makes it possible to determine the country with the most expensive cost of living.The currency with the higher inflation rate consequently loses value and depreciates, while the currency with the lower inflation rate appreciates on the forex market.Interest rates are also impacted. Inflation rates that are too high push interest rates up, which has the effect of depreciating the currency on foreign exchange. Conversely, inflation that is too low (or deflation) pushes interest rates down, which has the effect of appreciating the currency on the forex market.
Read this Term is well above the reserve bank’s target range, but will return towards the 2 percent midpoint over coming years
Forecasts ….
- RBNZ sees official cash rate at 1.49% in June 2022 (pvs 1.51%)
- RBNZ sees official cash rate at 2.57% in March 2023 (pvs 2.3%)
- RBNZ sees twi nzd at around 71.6% in March 2023 (pvs 75.1%)
- RBNZ sees annual cpi 3.2% by march 2023 (pvs 2.9%)
- RBNZ sees official cash rate at 2.84% in June 2023 (pvs 2.4%)
- RBNZ sees official cash rate at 3.35% in March 2025
RBNZ minutes:
- committee also affirmed that it was willing to move
the OCR in larger increments if required over coming quarters - OCR is expected to
peak at a higher level than assumed at the November statement - sales of the bank’s
LSAP bond holdings may put some upward pressure on longer-term
interest rates - many members saw
this as a finely balanced decision whether to move the OCR up by 25
or 50 basis points - committee agreed
that higher interest rates were consistent with house prices becoming
more sustainable - impulse to growth
from fiscal support is now ebbing and will wane - committee reached a consensus not to reinvest the proceeds for any upcoming LSAP maturities
RBNZ says
- says committee agreed that further removal of monetary policy
stimulus is expected over time - says headline cpi
inflation is well above the reserve bank’s target range, but will
return towards the 2 percent midpoint over coming years - employment is now
above its maximum sustainable level - says broad
range of economic indicators highlighting that the New Zealand
economy continues to perform above its current potential. - says managed sales
of bond holdings, in addition to not investing the proceeds of
maturities, were most consistent with achieving their mandate over
time - says intends to
commence bonds sales in July
Headlines summary above is via Reuters
—
The hike was as expected although some had been tipping 0.5%. The statement, minutes, and forecasts are all leaning more hawkish, the jump in NZD/USD reflecting this.
Governor Orr is up next, at 0200 GMT. The guy is a man of action, not waffle like some other central bankers.
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