New Zealand: RBNZ keeps key rate unchanged in August
August 10, 2017
At its meeting held on 10 August, the Reserve Bank of New Zealand (RBNZ) met market analysts’ expectations by keeping the Official Cash Rate (OCR) steady at a record low of 1.75%, where it has been since November 2016.
The Central Bank’s latest decision reflects its cautious stance against a backdrop of pervasive uncertainty abroad, slower economic activity at home and subdued inflation. Although economic growth in the country decelerated for the third consecutive quarter in Q1, economic fundamentals remain in good shape thanks to accommodative monetary policy, strong population growth, and a better performance in the external sector. Economic activity is expected to accelerate going forward buttressed by fiscal expansionary measures announced by the government. Inflation moderated from 2.2% in Q1 to 1.7% in Q2 but remains within the RBNZ’s target range. Inflation is expected to moderate in the upcoming quarters as the base effect of higher fuel and food prices dissipates. In turn, non-tradable inflation is expected to exert upward price pressure and contribute to bringing headline inflation “to the midpoint of the range over the medium term”.
The Bank provided clear forward guidance and reiterated that, “monetary policy will remain accommodative for a considerable period.” Raising rates is considered to be ill-timed because it could stifle growth prospects in the economy. On the other hand, lowering rates any further could lead to the creation of speculative bubbles in key economic sectors and undermine efforts by the government to cooldown the red-hot housing market.
The next policy meeting is to be held on 28 September.