New Zealand: Reserve Bank of New Zealand holds rate again in June
June 9, 2016
At its meeting held on 9 June, the Reserve Bank of New Zealand (RBNZ) decided to leave to the Official Cash Rate (OCR) unchanged at 2.25%, which was a decision expected by the markets. The Central Bank’s decision follows an unexpected 25-basis-point rate cut in March and no movement in April. In March, the Central Bank had cut the OCR and stated that, “further policy easing may be required.”
Although the RBNZ refrained from making any move in June, it maintained a strong dovish stance. In its statement, the Central Bank warned that, despite more stable global financial markets and a modest recovery in commodities prices, global economic activity remains weak. Regarding domestic developments, the Bank signaled that the economy continues to be supported by strong inward immigration, a healthy tourism sector and accommodative monetary policy. That said, as in previous statements, the Bank continued to recognize that, “the exchange rate is higher than appropriate given New Zealand’s low commodity export prices.” Regarding the evolution of consumer prices, the Bank sees that inflation remains low and that inflationary pressures remain absent in the short term. Regarding housing prices, the Bank went on to recognize that high prices in Auckland and other regions of the country are adding to concerns about financial stability.
Examining the risks to the country’s outlook, the Bank mentioned that, internationally, risks are related to prospects for global economic activity, commodities prices and the development in global financial markets. Domestically, the Bank said that the main risks to the outlook are uncertainty regarding inflation expectations, the possibility of continued high net immigration, as well as pressures and imbalances in the housing market.
The RBNZ concluded its statement by saying that monetary policy will continue to be accommodative and that further monetary policy movements require the Bank to make sure that average inflation settles near the middle of its inflation target range of between 1.0% and 3.0%. The next monetary policy meeting is scheduled for 11 August.
Author: Ricardo Aceves, Senior Economist