New Zealand Dollar stays firm after RBNZ left OCR unchanged at 1.75% as widely expected. In the accompanying statement, RBNZ maintained the intention to keep OCR unchanged “through 2019 and into 2020”.
The language that the “the direction of our next OCR move could be up or down” was removed. Instead, RBNZ said “there are both upside and downside risks to our growth and inflation projections. As always, the timing and direction of any future OCR move remains data dependent.”. That at first glance looked like the central bank is moving away from the possibility of a cut. However, Governor Adrian Orr made it clear in the press conference that “it would be pointless to remove that option”, regarding a cut.
Orr also talked down the pick-up in GDP growth in the June quarter as “partly due to temporary factors”. Instead, he pointed to businesses surveys which “suggest growth will be soft in the near term”. While employment is “around its “maximum sustainable level”, core inflation remains below 2% target mid-point, “necessitating continued supportive monetary policy”.
Below are the press conference video and full statement.
By loading the video, you agree to YouTube’s privacy policy.
Learn more
Official Cash Rate Unchanged at 1.75 Percent
Tena koutou katoa, welcome all.
The Official Cash Rate (OCR) remains at 1.75 percent. We expect to keep the OCR at this level through 2019 and into 2020.
There are both upside and downside risks to our growth and inflation projections. As always, the timing and direction of any future OCR move remains data dependent.
The pick-up in GDP growth in the June quarter was partly due to temporary factors, and business surveys continue to suggest growth will be soft in the near term. Employment is around its maximum sustainable level. However, core consumer price inflation remains below our 2 percent target mid-point, necessitating continued supportive monetary policy.
GDP growth is expected to pick up over 2019. Monetary stimulus and population growth underpin household spending and business investment. Government spending on infrastructure and housing also supports domestic demand. The level of the New Zealand dollar exchange rate will support export earnings.
As capacity pressures build, core consumer price inflation is expected to rise to around the mid-point of our target range at 2 percent.
Downside risks to the growth outlook remain. Weak business sentiment could weigh on growth for longer. Trade tensions remain in some major economies, raising the risk that trade barriers increase and undermine global growth.
Upside risks to the inflation outlook also exist. Higher fuel prices are boosting near-term headline inflation. We will look through this volatility as appropriate. Our projection assumes firms have limited pass through of higher costs into generalised consumer prices, and that longer-term inflation expectations remain anchored at our target.
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.
Meitaki, thanks.
