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RBNZ keeps rates on hold as expected

RBNZ keeps rates on hold as expected, reiterates numerous uncertainties remain

By Rebecca Howard

March 22 (BusinessDesk) - Acting Reserve Bank governor Grant Spencer kept the official cash rate unchanged at 1.75 percent and continued to signal that rates will remain on hold due to the lack of inflationary pressure.

"Monetary policy will remain accommodative for a considerable period," Spencer reiterated. "Numerous uncertainties remain and policy may need to adjust accordingly."

All 13 economists polled by Bloomberg had predicted the official cash rate would stay unchanged, with the median expecting the bank to stay on hold until at least 2019. The New Zealand dollar dipped slightly to 72.29 US cents from 72.34 US cents just prior to the release.

Spencer said inflation is expected to "weaken further in the near term due to softness in food and energy prices and adjustments to government charges." However, over the medium term, CPI inflation is forecast to trend upwards towards the midpoint of the target range. Longer-term inflation expectations are well anchored at 2 percent, he said.

New Zealand's consumer price index rose 1.6 percent in calendar 2017. The Reserve Bank is mandated with keeping annual inflation between 1-and-3 percent over the medium term with a focus on the mid-point. However, inflation has remained stubbornly weak, only pushing up to a 2.2 percent annual pace briefly in the 2017 March quarter before dipping back to 1.7 percent in the June quarter and 1.9 percent in the September quarter.

Regarding growth, Spencer noted it was weaker than expected in the fourth quarter, mainly due to weather effects on agricultural production. However, "growth is expected to strengthen, supported by accommodative monetary policy, a high terms of trade, government spending and population growth," he said. Labour market conditions are also projected to tighten further.

Spencer's decision comes in the wake of the US Federal Reserve today lifting the fed funds rate a quarter point to a range of 1.50 percent to 1.75 percent, with the top of the range now in line with the RBNZ's official cash rate.

It was his last rate decision before Adrian Orr begins as governor this month and signs a new policy targets agreement (PTA) with Finance Minister Grant Robertson.

(BusinessDesk)

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