RBNZ pulls off balancing act with OCR

The Reserve Bank covered all the bases yesterday with a Monetary Policy Review that noted some positive signs of economic recovery while reminding that the risk of further shocks remains very real.

The Official Cash Rate was left unchanged at 0.25 per cent as expected and the market was largely unmoved by the continuation of the Bank’s “wait and see” approach.

The statement from Governor Adrian Orr and the Monetary Policy Committee acknowledged a global recovery was under way but stressed it would “lower the OCR if required”.

Orr and the Monetary Policy Committee said the global economic outlook had continued to improve since February. “However, economic uncertainty remains elevated and divergences in economic growth within and between countries are significant,” he said.

New Zealand’s commodity export prices continued to benefit from robust global demand. But he noted “economic activity in New Zealand slowed over the summer months following the earlier rebound in domestic spending.

“Short-term data continues to be highly variable as a result of the economic impacts of Covid-19.”

There was no reason for the RBNZ to deviate from its “wait and see” and “least regrets” strategy, said ANZ chief economist Sharon Zollner. The market was already on board with the RBNZ’s message that tightening remains a distant prospect, she said.

The RBNZ noted the two big changes in domestic policy since the February statement — the Government’s housing policy changes and the upcoming opening of the transtasman bubble. But it did not build any assumptions about the potential outcomes into its forecasts.

“The Government’s new housing policies are likely to dampen house price growth, but the extent of the effect and implications for consumer price inflation, and employment will take time to be observed,” the Committee said. On the planned transtasman bubble it noted that the move “should support incomes and employment in the tourism sector both in New Zealand and Australia”.