NZ enjoys a ‘sweet spot’ in its economy

NEW Zealand left its official cash rate at a record low of 1.75 percent yesterday, with the central bank’s new chief saying the economy was currently enjoying a “sweet spot”.

Reserve Bank of New Zealand governor Adrian Orr said his first monetary policy decision since taking the role in March was a simple choice.

“It was easy in the sense that we’re in a good spot, we can keep the OCR where it is for a considerable period of time,” he told reporters.

“The hard part is what to do next... the direction of our next move is equally balanced up or down, only time and events will tell.” The base rate has remained unchanged since November 2016, when it was cut from 2.0 percent.

Mr Orr, who previously headed the state-owned New Zealand Superannuation Fund, said economic growth and employment were robust.

“The economy is well balanced, employment has been very strong, inflation’s been low and stable... I’ve started in what I would call a sweet spot for any governor to turn up,” he said.

Orr said inflation remained below the bank’s 2.0 percent target but was expected to approach the goal over the long term.

TD Securities strategist Annette Beacher said the central bank was unlikely to move rates until February next year.

Capital Economics economist Kate Hickie suggested the base rate could remain on hold until 2020, saying “the governor provided no real signal that a fundamental change is on the cards”.

“All this suggests that it will largely be business as usual under Orr’s leadership, with the economy continuing to determine policy,” she said.