Understanding the impact of the global economy and its effects on New Zealand are critical to the Reserve Bank when it considers Monetary Policy.
In a speech today to the Goldman Sachs Annual Global Macro Conference in Sydney, Reserve Bank Assistant Governor Christian Hawkesby set out the framework the Bank used to analyse the global economy and its influence on New Zealand.
“Using a simple framework with trade, financial, and uncertainty channels helps us try and make sense of a complicated world, and the policy implications for New Zealand,” Mr Hawkesby said.
The Monetary Policy Committee will begin meeting next week for the first time since November, and Mr Hawkesby stressed his remarks did not represent the formal view of the Committee.
The Reserve Bank lowered the Official Cash Rate by 75 basis points in 2019, due in part to the slowdown experienced by the country’s trading partners.
By applying this framework to developments in 2019, Mr Hawkesby said commodity prices for New Zealand’s primary products held up while offshore funding costs were broadly steady and the New Zealand dollar declined, helping insulate the economy from the global slowdown.
But prolonged uncertainty, particularly around Brexit and US-China trade tensions, was likely to have affected business confidence and investment.
“While New Zealand businesses cited a number of domestic factors, uncertainty about the global environment is likely to have also played a part,” Mr Hawkesby said.
The Reserve Bank is also monitoring the impact of the coronavirus through all three channels.
“The SARS virus in the 2000s provides some potential parallels, particularly through the effects on travel and confidence,” Mr Hawkesby said.