By Praveen Menon
WELLINGTON (Reuters) – New Zealand’s central bank is all but certain to hold rates at record lows of 1.0% at its policy review next week as domestic risks dissipate, but an easing could come soon, not least because a virus epidemic in China has raised growth risks.
At its first meeting of the year on Feb 12, the Reserve Bank of New Zealand (RBNZ) is likely to take comfort from a stabilizing economy as it delivered 75 basis points of easing last year.
The rate cuts helped lift inflation in the previous quarter closer to the 2% midpoint of RBNZ’s 1-3% target range, while the unemployment rate dropped.
In a Reuters poll, all 12 economists expected central bank to hold rates until the end of March, and only three predicted a cut by the end of June. Many economists are predicting at least one rate cut before the end of the year.
Although the RBNZ can afford to sit on the sidelines for now, the central bank will closely watch the global growth risks emanating from the rapidly-spreading coronavirus epidemic in China, ANZ Chief Economist Sharon Zollner said.
“They will acknowledge the human impact of the tragic new coronavirus, with cautious language about possible risks to the economic outlook,” she said.
Widespread global travel and work restrictions due to the coronavirus outbreak, which has so far killed over 630 people in China and sparked a global health emergency, are putting the squeeze on New Zealand firms doing business in the world’s second-biggest economy.
Meat, dairy, timber and seafood exporters in New Zealand have had to face cancellations in China, which is its single-biggest export market accounting for around one in every five dollars of sales of goods and services overseas.
New Zealand’s exports of goods and services to China were worth NZ$16.6 billion ($10.72 billion) for the year ended September 2018, higher than to Australia and almost double the sales to the United States, according to Statistics New Zealand.
Westpac said this week that New Zealand’s first quarter gross domestic product will be 0.6% lower than previously thought due to the impact of the coronavirus, assuming a two month ban on travel and one month of disruption in China’s factories.
New Zealand’s economy grew at a slightly below-expected 2.9% annual rate last year, as demand was partly hurt by the Sino-U.S. trade war.
Australia’s central bank held its cash rate this week and sounded doggedly optimistic even as markets bet devastating bushfires at home and China’s virus would force aggressive easing.
(Editing by Shri Navaratnam)