New Zealand Monetary Policy

New Zealand

New Zealand: Reserve Bank of New Zealand stays put again; signals neutral stance

January 29, 2015

At its 29 January monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) kept the official cash rate (OCR) unchanged at 3.50%. This is the fourth time that the rate has been left on hold following four consecutive rate hikes.

The Central Bank pointed out that the economy is growing at a solid pace, sustained by construction activity and increasing household incomes. In the view of the Central Bank, further positive developments are the low oil price, which will lift households’ purchasing power and reduce the cost of doing business, and the improving housing market. Nevertheless, according to the RBNZ, a number of factors are expected to drag on growth including, the weaker-than-expected world economy; financial market volatility; fiscal consolidation; the reduced dairy payout to farmers; the risk of drought and the strong New Zealand dollar.

Regarding price developments, the Bank said that traded goods inflation is low due to the high New Zealand dollar, subdued global inflation and dropping oil prices. In addition, according to the RBNZ, non-tradables inflation also remained “moderated”, despite a strong domestic economy and a strengthening labor market. The Reserve Bank expects inflation to remain below the RBNZ’s 1.0% to 3.0% target range throughout 2015. In addition, the Bank said that inflation could eventually turn negative before it begins to gradually approach 2.0%.

The RBNZ signaled a neutral stance toward future monetary policy decisions in saying that, “we expect to keep the OCR on hold for some time. Future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.” The next monetary policy meeting is scheduled for 12 March.

FocusEconomics panelists expect that the OCR will end this year at 3.73%. For 2016, participants see the interest rate ending the year at 4.22%.


Author: Teresa Kersting, Economist

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New Zealand Monetary Policy Chart


New Zealand Monetary Policy January 2015

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


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