RBNZ to give clearer signal on rates moves

The Reserve Bank is begin publishing its expected interest rate moves for the next few years.

On Tuesday the central bank announced a change to an element of its quarterly monetary policy statement (MPS), from publishing the likely path for short term bank interest rates for the coming years, to publishing the future path for the official cash rate (OCR).

The 90-bank bill rate typically provides a gauge of financial market expectations for what the Reserve Bank is expected to do with the OCR, aside from at times of stress in financial markets.

While differences have generally been shortlived, the Reserve Banks aid, recent regulatory changes for financial markets have been altering the relationship between the two, ‘‘complicating the bank’s communication of the monetary policy outlook’’.

From November, the bank will give its own projections for the OCR ’’as a more transparent way of presenting the expected policy actions needed to achieve its inflation target’’.

The level of the OCR - including its forecast future levels - generally have a major impact on the rates at which households can borrow and the returns paid on savings, so more explicate guidance for the OCR could assist financial decisions.

However, as interest rates have dropped, the relationship between the OCR and consumer rates have changed. When the OCR was cut in September banks passed on only a fraction of the cut to floating mortgage rates, while deposit rates actually increased.

The Reserve Bank said the change had ‘‘no bearing on the way that the bank conducts monetary policy’’.