As expected the Reserve Bank of New Zealand has left its Official Cash Rate unchanged at 2.25%, and it again left the door open to further cuts if needed.
The New Zealand dollar has jumped to a one-year high after the central bank left interest rates on hold at their record low. The NZ dollar immediately jumped to close to 71 cents on the news. Trading at around US70.2c before the release of the RBNZ statement, the dollar rose to US70.84 cents.
Kiwi economists had been split over whether there would be a rate cut, according to a Bloomberg survey.
"Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range,” Governor Graeme Wheeler said in the statement announcing the decision that sounded similar to the statement this week from Reserve Bank Australia governor, Glenn Stevens after it left its cash rate unchanged at 1.75%.
"There continue to be many uncertainties around the outlook. Internationally, these relate to the prospects for global growth and commodity prices, the outlook for global financial markets, and political risks.
Domestically, the main uncertainties relate to inflation expectations, the possibility of continued high net immigration, and pressures in the housing market.
"Headline inflation is low, mostly due to low fuel and other import prices. Long-term inflation expectations are well-anchored at 2 percent. After falling in recent quarters, short-term inflation expectations appear to have stabilised.
"We expect inflation to strengthen reflecting the accommodative stance of monetary policy, increases in fuel and other commodity prices, an expected depreciation in the New Zealand dollar and some increase in capacity pressures.
“The exchange rate is higher than appropriate given New Zealand’s low export commodity prices. Together with weak overseas inflation, this is holding down tradables inflation. A lower New Zealand dollar would raise tradables inflation and assist the tradables sector,” The governor said this morning.
"Domestic activity continues to be supported by strong net immigration, construction, tourism and accommodative monetary policy. The dairy sector remains a moderating influence with export prices below break-even levels for most farmers.
"House price inflation in Auckland and other regions is adding to financial stability concerns. Auckland house prices in particular are at very high levels, and additional housing supply is needed, “ Mr Wheeler said.
