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NZ dollar gains from 11-month low

NZ dollar gains from 11-month low

Wheeler defended the neutral stance, saying the bank hasn't seen significant wage pressures and that growth was slower than expected through the latter half of previous year, meaning there were fewer capacity constraints than anticipated. "We expect them to start lifting the OCR from the end of next year".

Yesterday, the currency closed 1.3 per cent lower, the biggest one-day drop since November's U.S. presidential election, after the Reserve Bank of New Zealand kept interest rates steady but issued a more dovish policy statement than expected. The currency's 5 percent decline on a trade-weighted basis over the past three months is "encouraging and, if sustained, will help to rebalance the growth outlook towards the tradables sector", Wheeler said.

Economists were looking to see whether that changing view would spur Mr Wheeler to bring forward the track of interest rate hikes.

Not only that, but the RBNZ also said that its neutral stance on monetary policy is now expected to be maintained to the third quarter of 2019.

The New Zealand dollar fell Thursday following the central bank's latest monetary policy decision.

The kiwi dropped half a USA cent after the release and was recently trading at US68.47 cents from US69.30c immediately before. Four tip a rate rise in early 2018, and swaps data late Wednesday showed a 69 percent chance of an increase in the first quarter.

"Right now, it seems quite clear that the RBNZ has far more confidence to deal with an inflation overshoot than the opposite, especially at a time when policy is already being tightened through the banking sector", ANZ Bank New Zealand economist Phil Borkin said in a note.

The bank's consumer price index forecasts show inflation falling back to the bottom of the 1-3 percent target band next year.

New Zealand's economy expanded at a healthy clip through 2016, supported by record immigration and booming tourism and construction.

Ray Attrill at National Australia Bank said the NZ dollar has struggled to pick itself up off the floor in the wake of the RBNZ's statement. The Bank of England's Monetary Policy Committee (MPC) will be deciding on monetary policy.

Jarman sighted structural indicators of higher funding costs for banks as a key theme that would keep interest rates low. There are signs the tighter rules may be having an impact, with house-price inflation slowing in largest city Auckland. However, there is a risk of resurgence given the continuing imbalance between supply and demand.

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