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 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."