RBNZ stays stuck in neutral

The Reserve Bank has kept the OCR on hold. Photo: Lynn Grieveson

The Reserve Bank has held the Official Cash Rate at 1.75 percent and appeared stuck in neutral in its decision 'in-between' full Monetary Policy Statements. The central bank is expected to keep short term interest rates flat until at least late 2018, and possibly into late 2019 if the bank's last full set of forecasts turn into reality.

The broadly neutral language in the eight-paragraph statement with the decision was expected by financial markets and economists, and the New Zealand dollar was also stuck around its closing levels of 70.4 USc immediately after the decision.

Some things have changed since the bank's February 9 Monetary Policy Statement, which included the full forecasts of an OCR unmoved until late 2019, when one hike was pencilled in. Governor Graeme Wheeler referred to an improvement in commodity prices and improved consumer sentiment in developed economies, but also pointed to ongoing surplus capacity and geo-political uncertainty (ie Trump's America First policies).

Wheeler noted the four percent fall in the New Zealand dollar on a Trade Weighted basis since the February statement, but said "further depreciation is needed to achieve more balanced growth."

He was also cautious about whether the recent moderation in house price inflation would be sustained, "given the continued imbalance between supply and demand."

However, the bank's overall comments were interpreted as leaving its bias as neutral. Economists don't expect any rate hikes until late 2018 at the earliest, although financial markets still see the first hike coming early next year.

And here's the key last paragraph that was seen as neutral: "Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly."

The next Monetary Policy Statement with a fresh decision is due on May 11.