New Zealand Monetary Policy February 2020

New Zealand

New Zealand: RBNZ on hold in February

February 12, 2020

On 12 February, the Reserve Bank of New Zealand (RBNZ) kept the official cash rate (OCR) unchanged. The Bank unexpectedly cut the rate by 50 basis points in August. Therefore, the OCB stays at an all-time low of 1.00%. The Bank dropped any reference to further monetary policy easing ahead, and, instead, highlighted that the current low level of interest rates remains necessary to keep employment and inflation around the target. The move matched markets’ expectations.

Although the RBNZ acknowledged that softness in economic activity carried over into early 2020, it also noted employment is hovering slightly above its maximum sustainable levels and inflation is close to midpoint of the target range of 1.0%–3.0%, thus prompting the Bank to stand pat. Moreover, although growth was soft overall in 2019, the economy should strengthen ahead thanks to low interest rates and some fiscal stimulus, while risks stemming from trade tensions eased as of late.

In its forward-looking guidance, the RBNZ stated that it considers current loose monetary policy conditions to be providing adequate support to domestic demand. Weak economic performances in Australia and China coupled with a stronger-than-projected economic impact of coronavirus could prompt the RBNZ to further cut rates in the near future, however.

The next monetary policy meeting is scheduled for 25 March.

Our panelists project that the OCR will end 2020 at 0.82% and 2021 at 0.90%.


Author: Massimo Bassetti, Economist

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New Zealand Monetary Policy Chart


New Zealand Monetary Policy February 20 20 0

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


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