No hikes on the agenda until at least 2019

RBNZ's Spencer keeps OCR at 1.75%, no hikes on the agenda until at least 2019

By Rebecca Howard

Feb. 8 (BusinessDesk) - Acting Reserve Bank governor Grant Spencer kept the official cash rate unchanged at 1.75 percent and continued to signal that rates won't get raised until the latter half of next year at the earliest due to the lack of inflationary pressure. The kiwi fell.

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

The consumers price index rose at a slower pace than expected in the December quarter due to cheaper food and transport prices, continuing the trend of inflation undershooting predictions. All 12 economists polled by Bloomberg predicted the OCR would stay unchanged.

"Annual CPI inflation, at 1.6 percent, was lower than forecast for the December 2017 quarter. Measures of underlying inflationary pressure remain low," the monetary policy statement said. The RBNZ expects headline inflation "to fluctuate over the coming year, partly as a result of variable tradables inflation and the removal of fees for the first year of tertiary education," it said.

The central bank lowered its inflation expectations but did not change its forecast track for the OCR. The bank forecasts the OCR rising to 1.9 percent in June 2019, unchanged from its prior projection in November. A full rate increase is still signalled by March 2020 when the benchmark rate is forecast to be 2 percent. The key rate is seen at 2.3 percent in December 2020 and 2.3 percent in March 2021, the end of the forecast period.

The Reserve Bank noted the New Zealand dollar is higher than it forecast in November "due in large part to a weak US dollar." However, "we assume the trade-weighted exchange rate will ease over the projection period," Spencer said. The New Zealand dollar fell after the statement and recently traded at 72.34 US cents from 72.56 cents immediately before its release.

The MPS was the last full review of monetary policy before Adrian Orr begins as governor in March and signs a new policy targets agreement (PTA) with Finance Minister Grant Robertson.

(BusinessDesk)

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