New Zealand central bank signals growth, policy risks
China's central bank skips open market operations
China's central bank skipped open market operations, citing abundant liquidity in the banking system.
The People's Bank of China said liquidity has been at a relatively high level, and could offset factors that drain liquidity from the market.
A reverse repo is a process by which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.
China will keep its prudent monetary policy "neither too tight nor too loose" while maintaining market liquidity at a reasonably ample level in 2019, according to the annual Central Economic Work Conference held in December.
Meanwhile, net capital inflow into China's A-share market through stock connects hit a record high in January, indicating that foreign investors are upping their involvement in the market this year.
Foreign capital poured into the A-share market as global investors' risk appetite lifted, following the United States Federal Reserve's announcement that it would be patient in raising interest rates, and amid signs of lessening trade tensions, said Zhang Xia, chief strategy analyst at Shenzhen, Guangdong province-based China Merchants Securities.
New Zealand's central bank retained the possibility of a rate cut in the face of rising economic risks, but its broadly neutral policy tone disappointed doves and sent the local dollar rallying to one week highs.
The Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) at a record-low 1.75 percent, where it has been since November 2016. "The direction of our next OCR move could be up or down," RBNZ Governor Adrian Orr said in a statement accompanying the widely-predicted policy decision.
Having first signalled the risks for rates were balanced in September last year, the central bank removed the reference in November. Orr said the central bank expects to keep rates at their current level through 2019, and 2020, and told a media briefing that while a cut was "not ruled out as a possibility," the risks of such a move hasn't increased.
Taken together, the central bank's stance was seen as less dovish than markets had wagered on, sending the New Zealand dollar rallying 1.6 percent to $0.6851 to a one-week high. The RBNZ forecast rates at 1.84 percent in December 2020, pulling back from an earlier prediction of 2.0 percent by then. While it did not cross 2 percent until September 2021 in the latest projections, the fact the central bank retained a long-term hike from its forecast disappointed rate bears.
"Financial markets have been moving towards pricing in the possibility of an OCR cut by the end of this year. Today's statement didn't do much to endorse that view," said Dominick Stephens, chief economist at Westpac Bank.
The New Zealand money market unwound some of its gains but is still pricing in a 60 percent chance of a rate cut by November this year, ANZ said in a note. Over recent weeks markets had been betting on a clear easing bias in the face of rising global pressure and as a number of major central banks, including the neighbouring Reserve Bank of Australia (RBA), downgraded growth forecasts.
The turn in policy impulse followed the US Federal Reserve's dovish shift last month, seen by markets as a signal that its three-year-drive to tighten monetary policy may be at an end as slowing global growth and trade tensions threatened to undermine the world's biggest economy.
The RBNZ acknowledged ramped up international risks, especially the chance of a sharper downturn in key trading partners' growth. "One of the things that could trigger lower-thanotherwise domestic demand that we see as particularly strong is the global economic outlook," Orr told reporters. "China has become an important conduit for our trade…China economic growth has slowed." But the central bank expects domestic impetus to temper external pressure on growth.
"Despite the weaker global impetus, we expect low interest rates and government spending to support a pick-up in New Zealand's GDP growth over 2019," Orr said.
That more optimistic outlook came despite recent figures showing economic growth slumped to 0.3 percent in the third quarter, its slowest pace in nearly five years and missing the bank's forecast of 0.7 percent.