Rate cut still on the table
Governor insists any reference to a move would be ‘data dependent’
Interest rates could still fall, despite Reserve Bank Governor Adrian Orr taking an explicit reference to cutting the Official Cash Rate (OCR) out of his statement.
He also said issues around low business confidence remained a potential issue for future economic growth.
Yesterday, the Reserve Bank kept the OCR on hold at 1.75 per cent. This was expected by both economists and the market.
Orr reiterated that lending rates would remain “at this level through 2019 and into 2020”.
“We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation,” he said in a statement.
In September and August, Orr said the next move in the OCR “could be up or down”. However, this statement was notably absent in his statement yesterday.
Westpac chief economist Dominick Stephens said it implies the Reserve Bank has moved away from the possibility of reducing the OCR.
But Orr told media this was not the case.
“I think it would be pointless to remove that option.”
He said the Reserve Bank was “very data dependent” about how the central bank’s projections unfold.
Negative risks to the economy, however, remain.
On removing the reference to moving the OCR moving “up or down”, Orr said he was not “anchored to exactly the same words, every time”. He said he could introduce the “up or down” phrase back into future OCR statements — this again would be “data dependent”.
Meanwhile, low business confidence remains an issue for the economy.
“Weak business sentiment could weigh on growth for longer,” Orr said in yesterday’s statement.
He told media low levels of business confidence — particularly around business investment — is something the bank is thinking about.
If GDP falls, Orr said the central bank would consider an OCR cut.
Weak business sentiment could weigh on growth for longer. Adrian Orr