The Reserve Bank of NZ has ended speculation of more rate cuts by leaving its official cash rate unchanged at 1.75%. In fact that rate won’t change for sometime unless the global economy suddenly sags.
In a statement this morning revealing the decision, the central bank made it clear there would be no more cuts because while growth had slowed in the December quarter, house price inflation had eased, inflation was now back to target range and the value of the NZ dollar had fallen 4% this year.
But the central bank also made it clear there would not be a rise anytime soon. As in Australia there are a small group of headline seeking idiot analysts and economists claiming that there could be a rate increase sooner than later.
In that respect it is in a similar position to the RBA, with the exception the Australian central bank has the hot east coast apartment market to contend with and try and bring under control.
"House price inflation has moderated, and in part reflects loan-to-value ratio restrictions and tighter lending conditions. It is uncertain whether this moderation will be sustained given the continued imbalance between supply and demand,“ RBNZ Governor, Graeme Wheeler said in the statement this morning.
"Headline inflation has returned to the target band as past declines in oil prices dropped out of the annual calculation. Headline CPI will be variable over the next 12 months due to one-off effects from recent food and import price movements, but is expected to return to the midpoint of the target band over the medium term. Longer-term inflation expectations remain well-anchored at around 2 percent.
"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,” Mr Wheeler said.
The bank pointed (like the RBA in Australia has done) to the sharp improvement in the global economic outlook.
"Macroeconomic indicators in advanced economies have been positive over the past two months. However, major challenges remain with on-going surplus capacity in the global economy and extensive geo-political uncertainty.
"Global headline inflation has increased, partly due to a rise in commodity prices, although oil prices have fallen more recently. Core inflation has been low and stable. Monetary policy is expected to remain stimulatory, but less so going forward, particularly in the US,” Mr Wheeler said this morning.
"The trade-weighted exchange rate has fallen 4 percent since February, partly in response to weaker dairy prices and reduced interest rate differentials. This is an encouraging move, but further depreciation is needed to achieve more balanced growth.
"Quarterly GDP was weaker than expected in the December quarter, but some of this is considered to be due to temporary factors. The growth outlook remains positive, supported by on-going accommodative monetary policy, strong population growth, and high levels of household spending and construction activity. Dairy prices have been volatile in recent auctions and uncertainty remains around future outcomes,” he said.
