Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


RBNZ commitment to inflation target crucial for guidance

RBNZ commitment to inflation target crucial for believable guidance, Bascand says

By Paul McBeth

Dec. 6 (BusinessDesk) - The Reserve Bank’s inflation target is crucial if it wants the private sector to believe its projected interest rate path, and means the monetary authority needs consistent communications, deputy governor Geoff Bascand says.

The central bank is mandated to provide a type of forward guidance in its policy statements, which is typically the future track of the 90-day bank bill rate, which creates greater certainty for households and firms, Bascand said in a speech in Auckland.

Future policy decisions are typically linked to economic conditions, which in New Zealand’s case will likely see short-term interest rate differentials widen because of its burgeoning economic recovery relative to its peers and trading partners, he said.

“The communication challenge with forward guidance – which equally applies to publishing interest rate projections – is how to reduce uncertainty about the likely path of policy while at the same time conveying its conditionality and the possibility of change in policy settings,” Bascand said. “Achieving this depends crucially on the private sector believing the bank’s unwavering commitment to the inflation target.”

New Zealand’s central bank has already signalled interest rate increases are likely next year as the rebuild in Canterbury and housing boom in Auckland threaten to fuel inflation, though governor Graeme Wheeler has said that’s dependent on whether the currency depreciates from what the bank views as an over-valued level.

Bascand said one the bank’s tests of whether it communicates effectively is how the market responds, though that doesn’t automatically mean the public will have the same understanding as the financial sector.

“A recent foray into the ‘public audience’ via an opinion article explaining the LVR (loan-to-value ratio) policy, that repeated our monetary policy expectations, appeared to reveal substantial public surprise about our interest rate projections,” Bascand said. “While unintentional, it therefore possibly enhanced the projection’s impact.”

In October, the bank introduced restrictions on low-equity lending as a means to dull the risk to the country’s financial stability from the bubbling property market without having to resort to hiking rates, which might have boosted the New Zealand dollar.

“We have reiterated that LVRs are targeted at the primary objective of financial stability, but that there is also a potential benefit for monetary policy if they reduce the spillover of house price inflation into stronger consumer demand and higher price inflation for goods and services,” Bascand said. “Explaining important inter-dependencies with other policies – our own or wider government ones – is vital.”


© Scoop Media

Business Headlines | Sci-Tech Headlines


Power Outages, Roads Close: Easter Storm Moving Down Country

The NZ Transport Agency says storm conditions at the start of the Easter break are making driving hazardous in Auckland and Northland and it advises people extreme care is needed on the regions’ state highways and roads... More>>


Houses (& Tobacco) Lead Inflation: CPI Up 0.3% In March Quarter

The consumers price index (CPI) rose 0.3 percent in the March 2014 quarter, Statistics New Zealand said today. Higher tobacco and housing prices were partly countered by seasonally cheaper international air fares, vegetables, and package holidays. More>>


Notoriously Reliable Predictions: Budget To Show Rise In Full-Time Income To 2018: English

This year’s Budget will forecast wage increases through to 2018 amounting to a $10,500 a year increase in average full time earnings over six years to $62,200 a year, says Finance Minister Bill English in a speech urging voters not to “put all of this at risk” by changing the government. More>>


Prices Up, Volume Down: March NZ House Sales Drop 10% As Loan Curbs Bite

New Zealand house sales dropped 10 percent in March from a year earlier as the Reserve Bank’s restrictions on low-equity mortgages continue to weigh on sales of cheaper property. More>>


Scoop Business: Chorus To Appeal Copper Pricing Judgment

Chorus will appeal a High Court ruling upholding the Commerce Commission’s determination setting the regulated prices on the telecommunications network operator’s copper lines. More>>



Cars: Precautionary Recalls Announced For Toyota Vehicles

Toyota advises that a number of its New Zealand vehicles are affected by a series of precautionary global recalls. Toyota New Zealand General Manager Customer Services Spencer Morris stressed that the recalls are precautionary. More>>


'Gardening Club': Air Freight Cartel Nets Almost $12 Million In Penalties

The High Court in Auckland has today ordered Swiss company Kuehne + Nagel International AG to pay a penalty of $3.1 million plus costs for breaches of the Commerce Act. Kuehne + Nagel’s penalty brings the total penalties ordered in this case to $11.95 million ... More>>


Crown Accounts: Revenue Below Projections

Core Crown tax revenue has increased by $1.9 billion (or 5.0%) compared to the same time last year. However this was $1.1 billion less than expected and is reflected across most tax types, continuing the pattern of recent months. More>>


Get More From Scoop

Computer Power Plus
Search Scoop  
Powered by Vodafone
NZ independent news