New Zealand Monetary Policy

New Zealand

Central Bank keeps rates unchanged but signals possible use of macroprudential tools

At its 13 June monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) maintained its monetary policy stance, leaving the official cash rate (OCR) unchanged at a record-low of 2.50%. The Central Bank has maintained the rate unchanged since March 2011.

In its accompanying statement, the Bank argued that growth is picking up substantially "but remains uneven across sectors". The Bank also stated that consumer spending continues to increase and reconstruction activity in Canterbury is gathering pace. In addition, monetary officials noted that housing prices are rising rapidly, particularly in Auckland and Canterbury, with monetary authorities emphasising that "the Reserve Bank does not want to see financial or price stability compromised by housing demand getting too far ahead of the supply response", thus hinting at the possibility of starting using macroprudential tools.

In a conference to media at the end of May, RBNZ governor Graeme Wheeler talked about the possibility of restricting the proportion of new loans banks are allowed to make above a certain loan-to-value ratio (LVR). Nonetheless, the RBNZ has not yet made any official commitment to restrict mortgage lending.

Meanwhile, monetary authorities pointed out that inflation has remained below the Bank's target (1% - 3%), owing mainly to a strong New Zealand dollar. Having said that, the RBNZ stated that "despite having fallen over the past few weeks, the New Zealand dollar remains overvalued and continues to be a headwind for the tradables sector, restricting export earnings and encouraging demand for imports".

A majority of FocusEconomics panellists expect the Reserve Bank of New Zealand to maintain the official cash rate stable this year, with an average forecast of 2.78%. For 2014, participants see interest rates ending the year at 3.63%.

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New Zealand Monetary Policy Chart

New Zealand Monetary Policy June 2013

Note: Official Cash Rate (OCR) in %.
Source: Reserve Bank of New Zealand.

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