Reserve Bank keeps OCR at 1.75%
OCR stays at 1.75 per cent in acting Reserve Bank governor’s last hurrah
Acting Reserve Bank governor Grant Spencer kept the official cash rate unchanged at 1.75 per cent yesterday and continued to signal that rates will remain on hold due to the lack of inflationary pressure.
“Monetary policy will remain accommodative for a considerable period,” Spencer reiterated. “Numerous uncertainties remain and policy may need to adjust accordingly.”
All 13 economists polled by Bloomberg had predicted the official cash rate would stay unchanged, with the median expecting the bank to stay on hold until at least 2019. The dollar dipped slightly to US72.29c from US72.34c just before the release.
Spencer said inflation was expected to “weaken further in the near term due to softness in food and energy prices and adjustments to government charges”. However, over the medium term, CPI inflation is forecast to trend upwards towards the midpoint of the target range. Longerterm inflation expectations were well anchored at 2 per cent, he said.
New Zealand’s consumer price index rose 1.6 per cent in calendar 2017. The Reserve Bank is mandated with keeping annual inflation between 1 and 3 per cent over the medium term, with a focus on the mid-point. However, inflation has remained stubbornly weak, only pushing up to a 2.2 per cent annual pace briefly in the 2017 March quarter before dipping back to 1.7 per cent in the June quarter and 1.9 per cent in the September quarter.
Regarding growth, Spencer noted it was weaker than expected in the fourth quarter, mainly due to the weather’s effect on agricultural production. However, “growth is expected to strengthen, supported by accommodative monetary policy, high terms of trade, government spending and population growth”, he said. Labour market conditions are also projected to tighten further.
It was Spencer’s last rate decision before Adrian Orr begins as governor this month and signs a new policy targets agreement (PTA) with Finance Minister Grant Robertson.
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