RBNZ Maintains OCR, BoE Brushes off Inflation Talks
The RBNZ, the central bank of New Zealand, maintained interest rates at 0.25 percent as expected and didn't decrease bond purchases and other interventionist measures to absorb global shocks. Meanwhile, the BoE is not fazed by inflation talks, brushing off suggestions that the economy could overheat as they struggle with the coronavirus pandemic's effects. The two central banks' confidence saw their respective currencies edge higher versus the USD that slid in the New York session.
Risks in New Zealand are broadly balanced for now, and talks of negative interest rates are off the table though they remain one of their tools. The response from the RBNZ was mainly affected following a string of stronger than expected economic data. Even as other countries struggle with the coronavirus's fallout, the Kiwi has been relatively firmer given how well the government has been managing the spread of the virus. The U.K.'s government will begin unwinding coronavirus restrictions from March. Coincidentally, there has been a sharp rise in household savings pointing to potential high consumer demand, a development that may accelerate inflation.
Impact on F.X. Prices:
Bullish. The NZD 100 billion bond purchase is a limit, not a target, according to the RBNZ. This suggests that the central bank may begin tapering in the coming months just when others think of adding more fiscal support. On the other hand, U.K. expects inflation to contract in the coming months partly because of the coronavirus scourge that will adversely impact the labor market.
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