Reserve Bank keeps cash rate on hold
The official cash rate has been left at 1.75 per cent, with the Reserve Bank warning the construction sector may be slowing.
In a move widely expected by financial markets, acting governor Grant Spencer left the benchmark rate unchanged, but appeared to point to a slight softening in the economy.
The economy was expected to continue to grow ‘‘at its current pace’’ in recent months and ‘‘construction was weaker than expected’’.
In its previous update the Reserve Bank had predicted that growth would accelerate.
Westpac chief economist Dominick Stephens said the comments hinted that the Reserve Bank may downgrade its growth forecasts in November, and raise the prospect of lower interest rates.
‘‘This is clearly weaker than the Reserve Bank’s previous statement that ‘growth is expected to improve going forward’,’’ Stephens said.
Kiwibank chief economist Zoe Wallis also noted the Reserve Bank’s growth forecasts ‘‘may be pointing toward a slightly lower growth profile in coming years’’.
The Reserve Bank also pointed to a weakening in house prices, although the wording was the same at the August statement and warned of the risk that price increases could resume.
‘‘House price inflation continues to moderate due to loan-to-value ratio restrictions, affordability constraints, and a tightening in credit conditions,’’ Spencer said.
‘‘This moderation is expected to continue, although there remains a risk of resurgence in prices given population growth and resource constraints in the construction sector.’’
Spencer said monetary policy ‘‘will remain accommodative for a considerable period’’ and that numerous uncertainties remained.
ASB chief economist Nick Tuffley said there was little change in the Reserve Bank’s stance since its last statement in August.
‘‘There is a hint the growth outlook may have been tweaked down very slightly. Nevertheless, the election outcome is likely to bring a greater degree of stimulus than the Reserve Bank’s forecasts will be currently factoring in.’’