New Zealand Monetary Policy

New Zealand

New Zealand: Reserve Bank of New Zealand stays put again in March; expects period of rate stability

March 12, 2015

At its 12 March monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) kept the official cash rate (OCR) unchanged at 3.50%. This is the fifth time that the RBNZ has left the rate on hold following four consecutive rate hikes.

Regarding the international environment, the Central Bank expects New Zealand’s main trading partners to grow at a similar pace as last year in 2015. While it said that growth in the U.S. remained robust, it noted that China slowed down. Moreover, the Bank expects the weak oil price to have a positive net effect on global GDP growth, but to further contribute to reducing already low global inflation. In addition, the RBNZ stressed that, while global monetary policy conditions remained accommodative, financial market volatility had increased due to several factors, such as the low oil price, uncertainty about global growth prospects and uncertainty around the next move in U.S. monetary policy.

In the Central Bank’s view, “the domestic economy remains strong,” helped by increased purchasing power resulting from the low oil price, a strong labor market and construction activity, high net immigration, supportive monetary policy, and a slight pickup in the housing market. Nevertheless, according to the RBNZ a number of factors are holding back growth including, drought in some areas of the country, fiscal consolidation efforts, lower dairy incomes and the high New Zealand dollar. The Central Bank again pointed out that the exchange rate was, “unjustifiably high and unsustainable,” and that a further depreciation would be needed to improve the sustainability of external accounts.

The Central Bank expects inflation to drop to around zero in this quarter and to remain subdued throughout this year, resulting from the high exchange rate, low international inflation and the weak global oil price. Moreover, the RBNZ noted that inflation expectations have declined recently.

The RBNZ maintained a neutral stance on its next monetary policy decisions and said that, according to its projections, it foresees a, “period of stability in the OCR.” The next monetary policy meeting is scheduled for 30 April.

FocusEconomics panelists expect that the OCR will end this year at 3.61%. For 2016, participants see the interest rate ending the year at 3.94%.


Author: Teresa Kersting, Economist

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New Zealand Monetary Policy Chart


New Zealand Monetary Policy March 2015

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


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