RBNZ's Orr keeps OCR at 1.75% in first outing

RBNZ's Orr keeps OCR at 1.75% in first outing, says next move could be up or down

By Rebecca Howard

May 10 (BusinessDesk) - New Reserve Bank governor Adrian Orr kept the official cash rate at 1.75 percent and said the direction of the next move is equally balanced and could be up or down although its forecasts continue to point to eventual rate increases. The New Zealand dollar fell.

Orr said economic growth and employment remain near their sustainable levels but inflation remains below the 2 percent mid-point of its target band. As a result, it expects to keep the OCR at "this expansionary level for a considerable period of time" as "this is the best contribution we can make, at this moment, to maximising sustainable employment and maintaining low and stable inflation."

The statement marks the first time the central bank must officially take employment into account after Finance Minister Grant Robertson and Orr signed a new policy targets agreement adding the goal of "supporting maximum levels of sustainable employment within the economy" to the existing goal of price stability.

According to the monetary policy statement, employment is currently within a broad range of indicators of the maximum sustainable level. Spare capacity in the labour market appears to have been absorbed, although estimates of capacity are uncertain, it said.

The New Zealand dollar fell to 69.48 US cents from 69.83 US cents just prior to the release.

All 15 economists polled by Bloomberg had expected rates to stay on hold. Given ongoing weak inflation, the central bank lowered its forecasts for inflation and the level of the New Zealand dollar on a trade-weighted index basis over the projected period. The TWI was recently at 72.88, well below the 75 average the RBNZ had previously projected for the current quarter. The TWI is now forecast to average 74.1 in the final two quarters of this year.

The Reserve Bank's forecast also shows the OCR rising to 1.9 percent in December 2019 versus a prior forecast of June. A full rate increase is still signalled by March 2020 when the benchmark rate is forecast to be 2 percent.

(BusinessDesk)

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