New Zealand Monetary Policy

New Zealand

New Zealand: Reserve Bank of New Zealand stays put; sends hawkish signals

December 11, 2014

At its 11 December monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) on hold at 3.50%. This represents the third time that the rate was kept unchanged following four consecutive rate hikes.

The Central Bank pointed out New Zealand’s strong economic performance throughout the year so far, which was driven by persistent consumption and construction growth and fueled by low interest rates. However, the Bank noted that the ongoing decline in dairy exports prices and the “unjustifiably and unsustainably high” exchange rate constitute an important drag on growth. The Banks sees economic growth remaining “at or above trend” until 2016, sustained by a solid labor market, ongoing investment growth and strong net immigration. In addition, the Bank foresees that modest inflationary pressures provide room for a more gradual tightening of the monetary policy than previously expected, which will also be supportive of growth.

Regarding international developments, the RNBZ noted that global economic growth was moderate and that it expects a slight slowdown among most major economies. On a positive note, the Bank sees monetary policy in all major economies remaining “very supportive” to growth. In addition, the RBNZ expects a significant depreciation of the New Zealand dollar (NZD), which would boost the performance of the external sector.

According to the Bank, inflation remained low due to subdued global inflation, tumbling oil prices, and the strong New Zealand dollar. Going forward, the Central Bank expects inflation to approach the 2.0% midpoint of its target range in the medium term.

The RBNZ adopted a tightening bias regarding future monetary policy decisions in stating that, “[s]ome further increase in the OCR is expected to be required at a later stage.” The next monetary policy meeting is scheduled for 29 January 2015.

FocusEconomics panelists expect that the OCR will end 2015 at 4.00%. For 2016, participants see the interest rate ending the year at 4.40%.


Author: Teresa Kersting, Economist

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New Zealand Monetary Policy Chart


New Zealand Monetary Policy December 2014

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


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