SYDNEY, July 21: The Reserve Bank of New Zealand has been sowing confusion in financial markets of late as it attempts simultaneously to warm up near-zero inflation and to cool down a housing market running red hot on ultra-low interest rates. The confusion started seeping in on July 7 when Deputy Governor Grant Spencer delivered a speech on “housing risks”, sending an unintended message that the Reserve Bank of New Zealand was turning hawkish and likely to keep interest rates steady. The New Zealand dollar shot higher as investors priced in less chance of a rate cut in August, despite perilously low inflation – just an annual 0.4 percent in the second quarter. The RBNZ then announced it would issue an economic update in an unusual move ahead of its Aug. 11 cash rate decision, causing more confusion in the market. It didn’t stop there, surprising markets with new “macro-prudential” rules to rein in sky-rocketing house prices. “RBNZ’s scattergun approach to forward guidance since the hawkish July 7 Spencer speech has not sat well to date,” said Annette Beacher, chief Asia-Pac macro strategist at TD Securities. Now, two weeks later, the bank has completely backtracked by announcing another easing in policy was likely to be needed. That saw the kiwi dollar skid to its lowest level in more than six weeks at $0.6952, and bringing its losses to 5 percent in seven sessions. The RBNZ’s “increasingly clumsy attempts at forward guidance” were a marked contrast to the measured tones of the Reserve Bank of Australia (RBA), noted Beacher. Since easing in May, the RBA has quietly left the door open to a further move without committing to anything. “I do think that the messages from the RBNZ have been a bit more challenging,” said HSBC Chief Economist Paul Bloxham. Yet he was also sympathetic to the bank’s plight. “The RBNZ is between a rock and a hard place at the moment,” he added referring to a booming housing market that is causing financial stability concerns on the one hand and below-target inflation on the other. “So it’s been a pretty challenging time in terms of determining their policy settings and that’s why the communication issues are more difficult for them.” (AGENCIES)
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