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23 Feb 2018 19:45
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  •   Home > News > Business

    RBNZ holds cash rate at 1.75 per cent

    The Reserve Bank of New Zealand has kept the official cash rate at its record low of 1.75 per cent, as expected.

    8 February 2018

    Acting Reserve Bank governor Grant Spencer kept the official cash rate unchanged at 1.75 per cent and continued to signal rates won't be raised until the latter half of next year at the earliest.

    He said this was due to the lack of inflationary pressure, with the kiwi falling after the release of the cash rate statement.

    "Monetary policy will remain accommodative for a considerable period," Spencer said in a statement.

    "Numerous uncertainties remain and policy may need to adjust accordingly."

    The consumers price index rose at a slower pace than expected in the December quarter due to cheaper food and transport prices, continuing the trend of inflation undershooting predictions. All 12 economists polled by Bloomberg predicted the OCR would stay unchanged.

    "Annual CPI inflation, at 1.6 per cent, was lower than forecast for the December 2017 quarter. Measures of underlying inflationary pressure remain low," the monetary policy statement said.

    The RBNZ expects headline inflation "to fluctuate over the coming year, partly as a result of variable tradables inflation and the removal of fees for the first year of tertiary education," the central bank said.

    The Reserve Bank now sees annual inflation at 1.1 per cent in the March quarter versus a prior forecast of 1.5 per cent. It does not expect inflation to return to the mid-point of its 1 per cent-to-3 per cent target band until September 2020 versus a prior forecast of June 2018.

    The central bank did not change its forecast track for the OCR, however, predicting it to rise to 1.9 per cent in June 2019, unchanged from its prior projection in November.

    A full rate increase is still signalled by March 2020 when the benchmark rate is forecast to be 2 per cent.

    The key rate is seen at 2.3 per cent in December 2020.

    "A clear theme of inflation remaining lower for longer is emerging," said ASB Bank economists. Against that backdrop, "the risk is the RBNZ can afford to wait longer until lifting the OCR than our long-held view of February 2019," it said.

    The Reserve Bank noted the New Zealand dollar is higher than it forecast in November "due in large part to a weak US dollar."

    The New Zealand dollar fell after the statement and recently traded at 72.34 US cents from 72.56 cents immediately before its release.

    The MPS was the last full review of monetary policy before Adrian Orr begins as governor in March.


    NZN




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