Reserve Bank seen on hold this week, no change in tone expected
By Rebecca Howard
Sept. 25 (BusinessDesk) - The Reserve Bank of New Zealand is tipped to keep rates on hold Thursday and acting governor
Grant Spencer is widely expected to signal no change on the immediate horizon in his first rate decision.
All 13 economists polled by Bloomberg see rates staying at a record low 1.75 percent Thursday. Beyond that, only one of
12 expects a 25 basis point lift in February versus the median that sees the first quarter-point increase in the third
quarter of 2018. Rates have been on hold since November last year when they were cut by 25 basis points.
"A short but balanced statement is expected, with only a few tweaks made to the August monetary policy statement
message," said ASB Bank chief economist Nick Tuffley. "The benign inflation outlook provides the RBNZ with the luxury of
waiting. We expect the OCR to remain on hold until early 2019 and for a gradual and shallow path of rate increases
thereafter."
In August the central bank reiterated that "numerous uncertainties remain and policy may need to adjust accordingly."
Thursday's decision comes after Saturday's general election saw no outright winner, creating a situation where it is
possible for either National or Labour to form a governing coalition.
"The RBNZ will want to provide continuity given the current election-impasse and with a new RBNZ Governor at the helm,"
said Tuffley.
Bank of New Zealand head of research Stephen Toplis said the chances of there being any change in tack are very low:
"With a new acting governor in place, policy uncertainties in abundance, and nothing much changed since the monetary
policy statement, it would be a real surprise if there was any hint of a change."
Any change - should it come - is likely to be more hawkish with the New Zealand dollar lower than expected, the world
outlook improving, commodity prices robust, fiscal policy easing and inflation forecasts likely to be revised higher, he
said.
However, "any suggestion of a hawkish tilt would still likely see fixed interest markets sell off and the NZD rally. The
RBNZ will do its best to avoid this even if its sentiment is shifting," said Toplis.
Kiwibank chief economist Zoe Wallis also said she is expecting little change in tone, with the bulk of the policy
statement unchanged. "We maintain our view that the RBNZ will leave the OCR unchanged until the end of 2018, before
gradually hiking interest rates," she said.
ANZ Bank New Zealand's chief economist Cameron Bagrie also said the central bank is unlikely to rock the boat and is
expecting it to "reiterate a cautious, watchful and neutral stance." He noted the economy is not performing poorly, but
"neither is it strong enough to change the inflation profile." While the housing market has cooled "we suspect the RBNZ
is still more worried about it taking off again than about the risk it slows further," he said.
All this is likely to reinforce to the bank that “numerous uncertainties remain," leaving it happy with its view, Bagrie
said.
Not everyone thinks the central bank will stay on the sidelines for an extended period, however. Annette Beacher, head
of economic analysis in Asia for TD Securities, isn't expecting any move Thursday but is tipping the RBNZ to begin
lifting rates in February - ahead of the median. "I don't think Spencer is going to sit back and be caretaker. He is
going to join the global narrative of policy normalisation," she said.
ENDS