If inflation expectations don’t fall, will have to do more on interest rates

On Thursday, the Reserve Bank of New Zealand’s (RBNZ) Chief Economist, Paul Conway delivered a keynote address about inflation, followed by a Q&A session. Conway shared several key quotes on the current state of monetary policy in New Zealand, the economy, bank regulations, and the potential for interest rate changes.

One of Conway’s most significant quotes was regarding the effect that monetary policy has had on the New Zealand economy. He stated that “monetary policy is definitely having an effect.” This statement suggests that the actions taken by the RBNZ to regulate the money supply and borrowing costs are having a measurable impact on the overall health of the economy.

Conway also acknowledged that forecasting the economy is challenging right now, given the global uncertainty surrounding the ongoing COVID-19 pandemic. This admission is a stark reminder of the difficulty of accurately predicting economic outcomes during periods of turbulence and uncertainty.

Addressing concerns about the stability of the New Zealand banking system, Conway expressed confidence in the banks that the RBNZ regulates. He stated that he believes the banks are sound, which should provide some reassurance to investors and individuals alike.

Conway also highlighted the potential impact of inflation expectations on future interest rate decisions. He stated that if inflation expectations don’t fall, the RBNZ may need to take additional action on interest rates. This statement suggests that the RBNZ is closely monitoring inflation expectations and may take further measures to control inflation if necessary.

The market reaction to Conway’s comments appears to have been positive, with the NZD/USD pair trading 0.40% higher on the day at 0.6245 at the time of writing. This increase suggests that investors may be more optimistic about the New Zealand economy after hearing Conway’s remarks.

Overall, Conway’s appearance at the keynote address and subsequent Q&A session provided valuable insights into the current state of monetary policy in New Zealand. While the ongoing pandemic and global uncertainty continue to present significant challenges to the economy, the RBNZ’s actions appear to be having a positive impact, and the banking system remains stable. Nonetheless, the RBNZ will need to continue to closely monitor inflation expectations and take any necessary steps to control inflation in the future.


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