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11/5/2018 — General
Clearer direction for unchanged OCR

New Reserve Bank Governor Adrian Orr kept the official cash rate at 1.75% and said the direction of the next move is equally balanced and could be up or down, though its forecasts continue to point to eventual rate increases.

The Otago Daily Times reported Orr as saying economic growth and employment remain near their sustainable levels but inflation is still below the 2% mid-point of the central bank's target band.

As a result, it expects to keep the OCR at “this expansionary level for a considerable period of time” as "this is the best contribution we can make, at this moment, to maximising sustainable employment and maintaining low and stable inflation.”

Quoting a BusinessDesk report, the ODT said that according to the monetary policy statement, ongoing spending and investment by both households and Government should support economic growth and employment demand, while business investment should also increase due to emerging capacity constraints.

“The emerging capacity constraints are projected to see NZ's consumer price inflation gradually rise to our 2 percent annual target," Orr said.

He said the RBNZ statement marks the first time the central bank must officially take employment into account after Finance Minister Grant Robertson and Orr signed a new policy targets agreement adding the goal of “supporting maximum levels of sustainable employment within the economy” to the existing goal of price stability.

The $NZ slipped to US69.37 cents soon after the announcement from US69.83¢ prior to the release.

BusinessDesk had said all 15 economists polled by Bloomberg had expected rates to stay on hold.

ASB Bank chief economist Nick Tuffley said the bank was “expressly neutral” and that while the details of the statement were similar to the previous document, “the RBNZ substantially changed the way in which it lays out the monetary policy statement, as it flagged earlier in the week. The result: greater clarity and a swiftly digestible message.”

According to Tuffley “the presentation is now being done in a way that makes the RBNZ's messages much clearer and less vulnerable to misinterpretation.”

Sources: odt.co.nz, businessdesk.co.nz

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