Reserve Bank chief maintains OCR at 1.75%
Reserve Bank governor Graeme Wheeler has kept the official cash rate at 1.75 per cent and will look through a recent pick-up in inflation which is seen as being a temporary spike in t he t radables sector, while complaining about the currency’s strength over the past month.
“The increase in headline inflation in the March quarter was mainly due to higher tradables inflation, particularly petrol and food prices,” Wheeler said. “These effects are temporary and may lead to some headline inflation.”
The central bank surprised some in the market last month when it reaffirmed its neutral bias, with inflation expectations appearing wellanchored and slower than anticipated economic growth meaning capacity had not been as stretched as policymakers feared.
A rate hike is not fully priced in until March 2020.
Wheeler again said long-term inflation expectations were anchored around 2 per cent and that while non- variability in tradable and wage inflation was “moderate”, both are expected to “increase gradually”.
He affirmed that monetary policy will stay “accommodative for a considerable period”, but may need to be adjusted as “numerous uncertainties remain”.
Wheeler tried to talk down the currency, with the trade-weighted index trading about 2.6 per cent higher than the central bank’s projected average for the June quarter, saying it had advanced 3 per cent since May, partly due to rising export prices. Government figures this month showed the country’s terms of trade are at a 44-year high.
The New Zealand dollar rallied by about half a US cent when it became clear to the market that the statement was not as “dovish” — or less likely to take aggressive action on inflation — as many had expected. The bank’s mention of the Budget, and its likely stimulatory effects, was also given as a reason to buy Kiwi dollars, alongside its comment on the the positive growth outlook for GDP growth.
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Paul McBeth