RBNZ leaves cash rate on hold at 1.75%. To “remain accommodative”

By Leith van Onselen

The Reserve Bank of New Zealand (RBNZ) has released its latest Monetary Policy Statement, whereby it has left the cash rate unchanged at 1.75% and noted that the housing market has accelerated despite moderate housing credit growth. It also indicates that rates will be on hold for the foreseeable future

Below is the Statement by RBNZ Governor Grant Spencer:

The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 1.75 percent.

Global economic growth continues to improve. While global inflation remains subdued, there are some signs of emerging pressures. Commodity prices have increased, although agricultural prices are relatively soft. International bond yields have increased since November but remain relatively low. Equity markets have been strong, although volatility has increased recently. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.

The exchange rate has firmed since the November Statement, due in large part to a weak US dollar. We assume the trade weighted exchange rate will ease over the projection period.

GDP growth eased over the second half of 2017 but is expected to strengthen, driven by accommodative monetary policy, a high terms of trade, government spending and population growth. Labour market conditions continue to tighten. Compared to the November Statement, the growth profile is weaker in the near term but stronger in the medium term.

The Bank has revised its November estimates of the impact of government policies on economic activity based on Treasury’s HYEFU. The net impact of these policies has been revised down in the near term. The Kiwibuild programme contributes to residential investment growth from 2019.

House price inflation has increased somewhat over the past few months but housing credit growth continues to moderate.

Annual CPI inflation in December was lower than expected at 1.6 percent, due to weakness in manufactured goods prices. While oil and food prices have recently increased, traded goods inflation is projected to remain subdued through the forecast period. Non-tradable inflation is moderate but expected to increase in line with increasing capacity pressures. Overall, CPI inflation is forecast to trend upwards towards the midpoint of the target range. Longer-term inflation expectations are well anchored at 2 percent.

Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.

The full Statement of Monetary Policy is available here.

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  1. There is too much debt around now for interest rates to be used for policy reasons………….the huge debt pile is too sensitive. Yankee ideas will be ignored for while, they are off into La La Land as they do every couple of generations….they will be back with the rest of us again one day.

    Meanwhile command and control ideas like in China might get a run……credit rationing


  2. “House price inflation has increased somewhat over the past few months but housing credit growth continues to moderate.”

    The effect of Chinese buyers purchasing before the restrictions come into effect. More Chinese buyers for Australia?