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

 

RBNZ reviewing 4.5% 'neutral' monetary policy setting

RBNZ reviewing 4.5% 'neutral' monetary policy setting

By Paul McBeth

March 12 (BusinessDesk) - The Reserve Bank is reviewing its 4.5 percent assumption for a neutral official cash rate setting as globally low inflation feeds into the local economy through the exchange rate.

Governor Graeme Wheeler told Parliament's finance and expenditure committee that work is underway to review what the central bank thinks is a neutral setting - where the OCR neither stimulates nor holds back economic growth. It's traditionally thought that's around 4.5 percent, but is "less sure of that," Wheeler said.

"We want to do more work around that in term of maybe in terms of maybe lower levels of interest rates are consistent" with ensuring economic growth isn't inflationary, he said.

In today's monetary policy statement, the bank said it lowered its neutral nominal 90 day interest rate assumption following the global financial crisis, but was still unsure whether those changes were sufficient to reflect developments in recent years, including the more recent signs that longer term inflation expectations have adjusted lower.

Reserve Bank chief economist John McDermott told the committee the country's strong exchange rate was one of the channels through which low global inflation was feeding into New Zealand, and that "might be something we have to lean against."

Wheeler again reiterated his view that the local currency was unjustifiably high and unsustainable, and that “a substantial downward correction in the real exchange rate was needed to put New Zealand’s external accounts on a more sustainable footing.”

He welcomed the kiwi's recent decline against the greenback as global markets prepare for the US Federal Reserve to start raising interest rates, and said the central bank would prefer the Fed to act earlier rather than later.

The kiwi jumped more than 1 US cent in response to the statement, after some traders were surprised by Wheeler's view that rates could go still go up. The local currency recently traded at 73.20 cents.

The bank today kept the OCR at 3.5 percent while dropping any future increases from the forecast track of the 90-day bank bill rate, which is seen as a proxy for the key rate, with a strong currency, the slump in oil prices and low global inflation keeping the pace of local consumer price increases subdued.

The bank can look through the initial price shock of the drop in oil prices, which is seen as a one-off, but if that feeds into reduced wage and price expectations, Wheeler may have to respond with lower interest rates.

When considering today's review, Wheeler told the committee that he weighed up interest rate cuts by about 20 other central banks, including seven in advanced economies, since January, but decided New Zealand's strong economic momentum, growing labour market, falling fixed-term mortgage rates, and positive output gap - where growth isn't inflationary - meant a reduction wasn't warranted.

"The cost of capital doesn't appear to be a significant constraint for business," Wheeler said. "If you look at the monetary policy setting, it's 3.5 percent, we still say it's expansionary, stimulatory for the economy."

(BusinessDesk)

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Westpac: Sets Out Plan To Go Cheque-Free

Westpac NZ has announced details of its plan to phase out cheques, after signalling in May that it would be supporting a move to other forms of payment. Cheques will cease to be available as a means of payment after 25 June 2021. Westpac NZ General ... More>>

ALSO:

NZTA: Major New Zealand Upgrade Programme Projects Go To Tender

Two major New Zealand Upgrade Programme projects are beginning tenders for construction. The New Zealand Upgrade Programme is a $6.8 billion investment to get our cities moving, to save lives and boost productivity in growth areas. The first Auckland ... More>>

Reserve Bank: RBNZ Seeks To Preserve Benefits Of Cash

The Reserve Bank – Te Pūtea Matua is taking on a new role of steward of the cash system “to preserve the benefits of cash for all who need them”, Assistant Governor Christian Hawkesby told the Royal Numismatics Society of New Zealand annual conference ... More>>

ALSO:

Economy: Double-Dip Recession Next Year, But Housing Rolls On

New Zealand's economy is expected to slip back into recession early next year as delayed job losses, falling consumer spending, and the absence of international tourists bites into growth. More>>

ALSO:

Microsoft New Zealand: Microsoft Expands “Highway To A Hundred Unicorns” Initiative To Support Startups In Asia Pacific

New Zealand, 14 October 2020 – Today Microsoft for Startups launches the Highway to a Hundred Unicorns initiative in Asia Pacific to strengthen the region’s startup ecosystem. This follows the initiative’s success in India, where 56 startups were ... More>>

Fonterra: Farmers Taking Another Step Towards New Zealand’s Low Emissions Food Production

They’re hot off the press and intended to help take the heat out of climate change. Fonterra farmers are already among the world’s most sustainable producers of milk and now have an additional tool in their sustainability toolbox. Over the last few ... More>>

ALSO:



Courts: Businessman Eric Watson Sentenced To A Four-Month Jail Term

New Zealand businessman Eric Watson has been sentenced to a four-month jail term in the UK for contempt of court, TVNZ reports. More>>

OECD: Area Employment Rate Falls By 4.0 Percentage Points, To 64.6% In Second Quarter Of 2020

The OECD area employment rate – the share of the working-age population with jobs – fell by 4.0 percentage points, to 64.6%, in the second quarter of 2020, its lowest level since the fourth quarter of 2010. Across the OECD area, 560 million persons ... More>>

Spark: Turns On 5G In Auckland And Offers A Glimpse Into The Future Of Smart Cities

Spark turned on 5G in downtown Auckland today and has partnered with Auckland Transport (AT) to showcase some of the latest in IoT (Internet of Things) technology and demonstrate what the future could look like for Auckland’s CBD with the power of 5G. 5G is ... More>>

Stats NZ: Monthly Migration Remains Low

Since the border closed in late-March 2020, net migration has averaged about 300 a month, Stats NZ said today. In the five months from April to August 2020, overall net migration was provisionally estimated at 1,700. This was made up of a net gain ... More>>

University of Canterbury: Proglacial Lakes Are Accelerating Glacier Ice Loss

Lake Tasman, New Zealand | 2016 | Photo: Dr Jenna Sutherland Meltwater lakes that form at glacier margins cause ice to recede much further and faster compared to glaciers that terminate on land, according to a new study. But the effects of these glacial ... More>>

ALSO:

Dairy: Fonterra Sells China Farms

Fonterra has agreed to sell its China farms for a total of $555 million (RMB 2.5 billion*1), after successfully developing the farms alongside local partners. Inner Mongolia Natural Dairy Co., Ltd, a subsidiary of China Youran Dairy Group Limited ... More>>

ALSO: