Over at Tumeke, Tim Selwyn states:
Not even our high interest rates are enough anymore (to keep our currency elevated) – that’s why I can’t see our Reserve Bank slashing rates on the 29th as aggressively as some people think they should
Now Tim raises a relevant point – a lower dollar both increases prices and stimulates activity for exports, as a result you would expect an exogenous fall in the value of the New Zealand dollar to constrain the size of any rate cuts in New Zealand.
However, the current value of the TWI (53) is broadly in line with where it was when the RBNZ cut rates by 150bps – and at the time they said that they believed that any further declines in the currency would “help” not hinder monetary policy. My impression is that this is because the Bank is interested in loosening as quickly as possible – without loosening “too far”. If the exchange rate is willing to adjust to a deterioration in New Zealand’s external position, then this is of great help to the Bank, and allows them to be more “conservative” by cutting in 75bp and 100bp chunks rather than heading straight for and OCR of 1%
As a result, I doubt that the current level of the TWI would prevent a large scale cut of the OCR by the RBNZ at its next meeting.