RBNZ's Orr keeps OCR at 1.75%, reiterates next move could be up or down

Thursday 28th June 2018

Reserve Bank governor Adrian Orr kept the benchmark rate on hold as widely expected and reiterated the next move could be up or down depending on how things unfold.

"The official cash rate will remain at 1.75 percent for now. However, we are well positioned to manage change in either direction – up or down – as necessary," said Orr in the one-page statement. The New Zealand dollar traded at 68.07 US cents as at 9.15am versus 67.94 US cents just prior to the statement.

The central bank is mandated with keeping inflation between 1 percent and 3 percent with a focus on the mid-point and with supporting maximum levels of sustainable employment within the economy.

"Employment is around its sustainable level and consumer price inflation remains below the 2 percent mid-point of our target, necessitating continued supportive monetary policy for some time to come," said Orr.

All 14 economists polled by Bloomberg expected the cash rate to be on hold today and the median said rates will remain unchanged through the forecast horizon going out to the second quarter of 2019.

At the May review, the central bank's forecast shows the OCR rising to 1.9 percent in the September 2019 quarter versus a prior forecast of June. A full rate increase was still signalled by March 2020 when the benchmark rate is forecast to be 2 percent.

In today's statement, Orr said ongoing spending and investment, by both households and government, is expected to support the economy. However, recent weaker-than-expected growth "implies marginally more spare capacity in the economy than we anticipated. The government’s projected spending impulse is also slightly lower and later than anticipated."

Government data show gross domestic product expanded 0.5 percent in the three months to March 31 versus a revised 0.6 percent expansion in the fourth quarter and was 2.7 percent higher on the year. The result was in line with economist expectations in a Bloomberg poll however it undershot the central bank’s forecast for 0.7 percent quarterly growth.

Orr said that global economic growth will support demand for New Zealand's products and services. While global inflationary pressures are increasing they remain modest and he noted "this outlook has been tempered slightly by trade tensions in some major economies. Ongoing volatility in some emerging market economies continues."

According to Orr, domestic consumers prices index inflation is likely to increase in the near term due to higher fuel prices. Beyond that, inflation is expected to gradually rise to the 2 percent annual target, resulting from capacity pressures.

The CPI rose at an annual pace of 1.1 percent in the three months ended March 31, slowing from a pace of 1.6 percent in the December quarter.

"The best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period," he said.

(BusinessDesk)

Comments from our readers

No comments yet