RBNZ's Wheeler keeps OCR at 1.75% and rate track intact

Published: Thu 10 Aug 2017 12:33 PM
RBNZ's Wheeler keeps OCR at 1.75% and rate track intact
By Paul McBeth
Aug. 10 (BusinessDesk) - Reserve Bank governor Graeme Wheeler kept the official cash rate at 1.75 percent with future projections unchanged, disappointing some analysts who had been tipping an even later start to a tightening cycle.
"Monetary policy will remain accommodative for a considerable period," Wheeler said in a statement. "Numerous uncertainties remain and policy may need to adjust accordingly."
All 11 economists polled by Bloomberg expected Wheeler to keep the benchmark rate unchanged, although a run of weaker economic data including slower growth, lower inflation and softer jobs growth has seen some analysts predicting the central bank could further delay any projected increases.
The RBNZ kept its forecast for the OCR unchanged at 1.8 percent until September 2019 when it creeps up to 1.9 percent, with a quarter-point increase not fully predicted until March 2020. The latest forecast includes the September 2020 quarter with the OCR rising to 2.1 percent.
In a note before the release, Bank of New Zealand currency strategist Jason Wong said he expected Wheeler "to play with a straight bat in his final showing as governor" and that the "underlying message will be that the RBNZ is in no hurry to join some other major central banks in looking to remove policy accommodation."
The period of low inflation has been a global phenomenon and for the likes of New Zealand has been compounded by major central banks' ultra-loose monetary policy settings making the relatively high domestic interest rates stoke demand for the currency.
The central bank scaled back its forecast for inflation for the next three quarters by about half a percentage point, predicting annual consumer price index inflation of 1.6 percent in the September quarter and 1.3 percent in December and falling to 0.7 percent in March next year, back below the RBNZ's 1-to-3 percent target band. It's then seen rising in subsequent quarters, reaching the 2 percent mid-point target in March 2019.
"Headline inflation is likely to decline in coming quarters as the effects of higher fuel and food prices dissipate," Wheeler said. "The outlook for tradables inflation remains weak. Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term."
Wheeler didn't ramp up his rhetoric on the currency, which has been overshooting the RBNZ's May forecast, noting the trade-weighted index had increased in part due to the weaker greenback and reiterating that "a lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth."
The kiwi dollar initially spiked about 20 basis points, but was left little changed at 73.40 US cents from 73.37 cents immediately before the release, and at 77.38 on the TWI from 77.34.
The Reserve Bank lifted its projections for the TWI, seeing it holding at 77 or higher until the December quarter of this year before falling to 75.7 in December 2019. It had previously seen it averaging 75.8 in the September quarter, falling to 75.3 by March next year.
Wheeler noted weaker economic growth in the March quarter than expected and a softening through the tail-end of last year but was optimistic it would improve "supported by accommodative monetary policy, strong population growth, an elevated terms of trade, and the fiscal stimulus outlined in Budget 2017."
Independent, Trustworthy New Zealand Business News
The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.
Contact BusinessDesk

Next in Business, Science, and Tech

Slightly softer growth expected in PREFU
By: New Zealand Government
“The Right Thing To Do”
By: Farming Leaders
Law changed to support grocery stores
By: New Zealand Government
McClay - Government approves TPP11 mandate
By: New Zealand Government
Microbeads to be banned in New Zealand
By: New Zealand Government
NZ Govt Pre-election, Economic Fiscal Forecasts
By: HiFX
National lays out conditions for Family Incomes Package
By: New Zealand National Party
Financial update confirms Government happy to just drift
By: New Zealand Labour Party
We can end poverty, clean up our rivers, and tackle climate
By: Green Party
Government surpluses no reason to celebrate
By: ACT New Zealand
Robbing kids to pay for roads
Farmers’ river pledge welcomed
By: New Zealand Government
Farming leaders pledge to clean up New Zealand rivers
By: New Zealand Labour Party
Swimmable means swimmable
By: Dairy NZ
Farming leaders welcome in plan to rescue water
By: Choose Clean Water
View as: DESKTOP | MOBILEWe're in BETA! Send Feedback © Scoop Media