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New Zealand Monetary Policy August 2018

New Zealand: RBNZ keeps key rate on hold in August

At its 9 August meeting, the Reserve Bank of New Zealand (RBNZ) met market analysts’ expectations and kept the Official Cash Rate (OCR) unchanged at a record-low 1.75%, where it has been since November 2016. This was the third monetary policy meeting incorporating the broadened mandate of supporting maximum sustainable employment and achieving price stability.

The RBNZ’s decision was taken against a backdrop of moderating growth in recent quarters and inflation remaining below the 2.0% target. Although the Bank expects GDP growth to pick up in the near-term, global trade tensions, weak business confidence and a cooling housing market are viewed as the main downside risks. On the price front, the RBNZ noted that, while inflation remains low, there are early signs of rising inflationary pressures, which will receive further support from higher minimum wages and elevated oil prices going forward. Nevertheless, given the Bank’s less upbeat take on the growth outlook and the balanced risks it sees to its inflation forecast, the RBNZ deemed that policy needed to remain stimulatory “to ensure inflation continues to rise towards the target mid-point.”

Showing a substantially lower forecast path for the OCR than the one from May’s quarterly statement, future guidance was clear: Whereas a rate hike was expected by Q3 2019 in the previous statement, this has been pushed out to Q3 2020 in the current one. The Bank also stressed its dovish stance by affirming it will keep the “OCR at an expansionary level for a considerable period.”

The next monetary policy meeting is scheduled for 27 September.

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