Growth on horizon, says Orr

The Reserve Bank has warned of the risks of a global economic slowdown as it signalled that the next move for interest rates could be a cut.

As expected, the central bank left the official cash rate (OCR) at 1.75 per cent, signalling it would probably stay at this level until 2021, slightly longer than was previously predicted.

‘‘The direction of our next OCR move could be up or down,’’ governor Adrian Orr said in a statement.

Although the central bank has hinted at the possibility of a future interest-rate cut, yesterday’s statement made the risk of a cut explicit.

It predicted that while economic growth among our trading partners would slow, growth in New Zealand would pick up in the coming year.

The New Zealand dollar jumped on the news, up more than half a cent against the United States dollar, to be buying a little over US68 cents.

‘‘Trading-partner growth is expected to further moderate in 2019 and global commodity prices have already softened, reducing the tailwind that New Zealand economic activity has benefited from,’’ Orr said.

‘‘The risk of a sharper downturn in trading-partner growth has also heightened over recent months.’’

Despite the risks, the Reserve Bank is still predicting the New Zealand economy will grow at a rate of about

3 per cent this year. Although this is down from the

3.4 per cent it predicted in December, the central bank believed the final months of 2018 would be stronger than was previously expected.

‘‘We expect low interest rates and government spending to support a pick-up in New Zealand’s [economic] growth over 2019,’’ Orr said.

‘‘Low interest rates and continued employment growth should support household spending and business investment. Government spending on infrastructure and housing also supports domestic demand.’’

National Party finance spokeswoman Amy Adams said the Reserve Bank’s forecasts were a reality check for the Government.

‘‘Forecast growth has either stalled or been downgraded in every quarter for the next three years. The central bank’s reality check on growth comes just 24 hours after the prime minister gushed that the economy ‘is performing above expectations’.’’

ASB chief economist Nick Tuffley said the statement was more cautious than the Reserve Bank’s last forecasts, but was still predicting the economy would pick up speed this year.

If this momentum did not eventuate, Tuffley said there was a chance of interest-rate cuts.