Dollar up as bank holds OCR

The Reserve Bank has surprised no-one by leaving the official cash rate (OCR) on hold at 1.75 per cent, while cautioning a lull in house price rises could be temporary.

Banks and analysts pored over its latest commentary for a sense of where rates may go next – and when – but found few fresh clues.

The Reserve Bank said monetary policy would remain ‘‘accommodative’’ for ‘‘a considerable period’’.

But it gave itself wriggle room to change tack, saying ‘‘numerous uncertainties remain and policy may need to adjust accordingly’’.

The Reserve Bank noted GDP growth in the March quarter was lower than expected and also said a lower New Zealand dollar would help create better-balanced economic growth.

It expected a ‘‘moderation’’ in house price rises to continue.

All of those comments point to a low OCR. But it countered that by saying the growth outlook remained positive, supported by accommodative monetary policy, strong population growth, and high terms of trade.

‘‘Recent changes announced in Budget 2017 should support the outlook for growth,’’ it said.

It also warned there was a risk of a resurgence in house price rises ‘‘given the ongoing imbalance between supply and demand’’.

Inflation was heading towards the midpoint of its target band over the medium term, it said. ‘‘Longer-term inflation expectations remain well-anchored at around 2 per cent.’’

ASB said it continued to expect the OCR to remain on hold until late next year.

"Recent changes announced in Budget 2017 should support the outlook for growth." Reserve Bank

The tone of the Reserve Bank’s statement was largely unchanged ‘‘except where it acknowledged recent developments and these comments were in line with our expectations’’, it said.

ANZ agreed the ‘‘clear neutral stance’’ on rates remained, but said it still expected the OCR to go up next year, ‘‘given our belief that the economy will grow at a rate that will gradually eat into capacity’’.

The Reserve Bank itself was ‘‘some way away from embracing that mind-set’’, it said.

Financial markets pushed the kiwi slightly higher in the wake of the OCR statement yesterday. The kiwi rose from US72.31 cents to US72.5c and gained 0.15c against the euro.

It had held onto similar advances against the battered British pound and the Australian dollar by late afternoon.

Banks had previously warned mortgage rates might rise despite expectations that the OCR could remain on hold until 2019.

They have cautioned that New Zealand’s low savings rate is forcing them to go overseas and pay higher rates to fund the country’s house-price boom.

The OCR statement followed weaker than expected GDP growth and balance of payments figures this month.