As widely expected the Reserve Bank of New Zealand decided to maintain its accommodative stance by keeping its benchmark interest rate at record low levels, adding that it would continue doing so for a “considerable period”.
Specifically, the central bank’s official cash rate was held at 1.75%. It has been at this level since November 2016, the last time the Bank engaged in a quarter percentage point rate cut.
The RBNZ Governor Graeme Wheeler said that “policy may need to adjust accordingly” as “numerous uncertainties” remain in place. He added that the recent appreciation in the New Zealand dollar was partially attributed to higher export prices and that a weaker currency would help rebalance growth.
Economic growth standing at the weak 0.4% quarter-on-quarter in the first quarter of the year was seen as transitory by the central bank, which expressed the view that prospects for the economy were “positive” due to, among others, low interest rates, strong population growth and changes in the country’s Budget that would enhance family income and infrastructure spending.
Forex market participants reacted positively to the news, pushing the New Zealand dollar to the highest level it has reached so far during the day at $0.7276. Before the news, kiwi/dollar was trading at 0.7215. In morning European trading hours, the New Zealand dollar was up six-tenths of a percent relative to its US counterpart, with kiwi/dollar at 0.7255.
Analysts expect the RBNZ to keep rates at their current level for at least the remainder of the year.
