The New Zealand Dollar has been on a losing streak over the past several weeks and analysts have begun to predict an end to the currency’s gains as the New Zealand government releases its Future Policy Toolkit. While the economy is expected to recover in the first half of the next year, the policy set-up remains unclear with many analysts predicting that more drastic action will be taken to combat global economic uncertainty.
With the Future Policy Toolkit set to be released soon, there is speculation that the Government will step-up the Reserve Bank’s key interest rate. However, many economists remain confident that the Reserve Bank will not raise rates until inflation rises to levels that will justify a rise.
While the Reserve Bank is not expected to reduce interest rates as a result of the Release of the Future Policy Toolkit, analysts believe that the government will soon announce a package of economic reforms that would include a range of new tax initiatives to bolster growth. In addition, some analysts believe that the Budget will contain further measures to tighten the fiscal policy over the next few years.
Although many analysts believe that the release of the Future Policy Toolkit is a positive for the economy, many experts are concerned about the effect it will have on the Australian Dollar. With the US Dollar falls sharply against the Australian Dollar recently, many analysts expect that a similar situation will occur in New Zealand once the Australian dollar falls against the New Zealand Dollar. As such, the Future Policy Toolkit will most likely have little impact on the Australian Dollar, although the effects on the New Zealand Dollar may be felt on other foreign currency pairs.
In addition to its anticipated release of the Future Policy Toolkit, the Reserve Bank will also announce a number of economic programs that will come into effect over the next few months. In addition to introducing further fiscal stimulus, the Reserve Bank will introduce further monetary policy measures to help the economy to maintain a stable exchange rate, including reducing the amount of base cash and conducting a research programme on the New Zealand economy.
With the Future Policy Toolkit released, the Reserve Bank is likely to continue its efforts to strengthen the economic recovery, which is currently being driven by a continued decline in the New Zealand Dollar against the Australian Dollar. The Reserve Bank is also expected to adopt a more accommodating approach to raising interest rates, which has become more cautious following the recent reduction in the Auckland housing market in the United Kingdom.
If the Reserve Bank follows the advice of the Reserve Bank in releasing the Future Policy Tools, analysts expect that the Bank will tighten the monetary policy further in order to prevent inflation from reaching the level that would justify a further increase in interest rates. However, if the Reserve Bank chooses to increase the base cash amount further, analysts predict that this will have a relatively small impact on the New Zealand economy given that the NZD/USD is expected to rise or remain flat on a daily basis over the coming years.
As previously mentioned, the Reserve Bank is expected to release its Future Policy Toolkit in September. Once the Future Policy Toolkit is released, analysts expect that the Reserve Bank will continue to implement further economic stimulus measures to keep the economy in a relatively stable position, although they believe that the economy may experience some mild short term fluctuations in reaction to the release of the Future Policy Toolkit.
In addition to the expected release of the Future Policy Toolkit, the Reserve Bank will also announce several monetary policy programs that will come into effect over the coming months, including the release of the RBNZ Superannuation Investment Plan and the establishment of the New Zealand Superannuation Guarantee Scheme. If the Reserve Bank’s policies are combined with the forthcoming release of the Future Policy Toolkit, it is expected that there will be a stronger recovery and unemployment levels may return to normal levels.
With a weak dollar, increased demand for imported goods and services and an improved outlook for the New Zealand economy, analysts expect that the Reserve Bank will continue to tighten monetary policy over the next few years. However, if the Reserve Bank opts not to reduce the monetary base at this time, analysts expect that the New Zealand economy will experience a temporary rise in the NZD/USD that will decline back towards its previous low point, thereby providing a period of stability for the New Zealand Dollar.