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New Zealand Monetary Policy November 2018

New Zealand: RBNZ leaves OCR on hold in November

At its last meeting of the year held on 8 November, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) unchanged at a record-low 1.75%, where it has been since November 2016. The decision was widely expected by market analysts. This was the fifth monetary policy meeting incorporating the broadened mandate of supporting maximum sustainable employment and achieving price stability.

A backdrop of strong economic data but inflation remaining below the 2.0% target drove the RBNZ’s decision. Although inflation climbed to a one-year high of 1.9% in Q3 (Q2: 1.5%), the increase was mainly due to higher petrol prices. Core inflation, on the other hand, continued to trail behind and remains stubbornly below the target. In addition, although the latest unemployment data showed that the labor market tightened further in Q3, signs of meaningful wage growth were not apparent. Thus, still-subdued inflationary pressures led the Bank to assess that further supportive policy was required. Looking ahead, the RBNZ expects growth to accelerate next year, which, coupled with rising capacity pressures, should assist core inflation to climb to target.

In terms of forward guidance, the communiqué maintained key phrases such as the Bank expects “to keep the OCR at this level through 2019 and into 2020” and “keep the OCR at an expansionary level for a considerable period”. Notably, however, the Bank removed the phrase that the next OCR move could be “up or down”, departing from its previous meeting’s assessment when it signaled that a rate cut was a possibility. In addition, despite stronger inflation projections, the OCR forecast remained unchanged from the August Statement, pointing to an OCR hike no earlier than mid-2020.

The next monetary policy meeting is scheduled for 13 February 2019.

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