New Zealand Monetary Policy March 2017

New Zealand

New Zealand: RBNZ keeps Official Cash Rate steady at record low

March 23, 2017

At its second meeting of the year held on 23 March, 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 rested since November 2016.

The Central Bank’s latest decision reflects its caution against a backdrop of heightened uncertainty abroad. Lowering interest rates any further would be counterproductive to the objective of bringing inflation closer to the middle of the 1.0%-3.0% target range. On the other hand, raising rates would increase the interest rate differential between the RBNZ and other major Central Banks, resulting in an appreciation of the currency. This would stifle domestic demand at a time when recently released figures show that the economy grew less than expected in Q4.

The Bank was very clear that monetary conditions will remain accommodative for the foreseeable future. The Bank is reluctant to rock the boat amid pervasive uncertainty abroad and is hesitant to make any interest rate change without a clearer picture of the international outlook. The Bank is closely monitoring the evolution of the NZD and welcomed the recent trade-weighted depreciation of the currency (4% since February), since it will contribute to driving prices of imported goods up and help maintain a healthy rate of inflation.

The next meeting will be held on 11 May.

FocusEconomics panelists expect that the OCR will end 2017 at 1.69%. For 2018, participants see the interest rate ending the year at 2.00%.


Author: Jean-Philippe Pourcelot, Economist

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New Zealand Monetary Policy March 2017 0

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


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