Official Cash Rate set to stay at 1.75% until 2020
THE Reserve Bank’s interestdriving offical cash rate (OCR) looks set to be held at the record low 1.75% until 2020, which was widely expected by analysts yesterday.
The New Zealand dollar rose to US66.68c at 9.15am yesterday, against US66.54c before Mr Orr’s statement was released.
There was only muted US market reaction yesterday after its Federal Reserve announced the expected 0.25% lift in its official cash rate to 2.25%.
Reserve Bank governor Adrian Orr said he expected to keep the OCR at the same level through 2019 and into 2020.
‘‘Employment is around its sustainable level and consumer price inflation remains below the 2% midpoint of our target, necessitating continued supportive monetary policy,’’ he said in a statement.
The Reserve Bank’s OCR out look assumed the pace of growth would pick up over the year ahead, assisting inflation to return to the target midpoint, which is between 1% and 3%.
ASB economist Nick Tuffley said the Reserve Bank was ‘‘significantly surprised’’ secondquarter gross domestic product (GDP) growth came in at 2.8%, for the year to June, when and the bank’s expectations were for 2.3%.
The Reserve Bank had acknowledged it was a stronger starting point, but emphasised the negative risks to the growth outlook remained.
‘‘We continue to expect the Reserve Bank will keep the OCR on hold, and eventually lift it in early 2020,’’ Mr Tuffley said.
He noted the bank’s ‘‘modest inflation outlook’’ underscored its lack of urgency to adjust policy settings at this point.
Mr Orr said he expected consumer price inflation would gradually rise to the Reserve Bank’s 2% midpoint, annual target, as capacity pressures increased.
Westpac chief economist Dominick Stephens said the headline phrases of Mr Orr, relating to the OCR outlook, were very similar to previous statements.