New Zealand Monetary Policy June 2017

New Zealand

New Zealand: RBNZ on hold in June

June 22, 2017

At its meeting held on 22 June, 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 and slower economic activity at home. Economic growth in the first quarter of this year disappointed as it was dragged down by a decline in the construction sector and lower export volumes. Inflation in the first quarter rose above 2.0% for the first time since Q3 2011 but is expected to remain subdued in the upcoming quarters. The increase seen in Q1 is largely attributed to temporary factors such as higher prices for tradable goods and energy products, while subdued wage growth and Non-Tradable Inflation, on the other hand, are keeping a lid on inflationary pressures.

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. Although inflation in Q1 crossed the lower band of the Reserve Bank’s inflation target, it does not want to jump the gun after a prolonged period of low inflation. 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 10 August.

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 Chart

NewZealand Monetary Policy May 2017

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

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