Once again the Reserve Bank of NZ has left its key interest rate unchanged at 1.75% in an echo of the decision and reasoning used by the Reserve Bank of Australia on Tuesday.
"Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly,” Governor, Grant Spencer said in a statement this morning.
The justification for the decision was similar to the reasons advanced by RBA Governor, Phil Lowe – low inflation, weak consumer demand and low wage growth – despite a solid labour market.
“Annual CPI inflation was 1.9 percent in September although underlying inflation remains subdued.
“Non-tradables inflation is moderate but expected to increase gradually as capacity pressures increase.
"Tradables inflation has increased due to the lower New Zealand dollar and higher oil prices, but is expected to soften in line with projected low global inflation. Overall, CPI inflation is projected to remain near the midpoint of the target range and longer-term inflation expectations are well anchored at 2 percent.
“Employment growth has been strong and GDP growth is projected to strengthen, with a weaker outlook for housing and construction offset by accommodative monetary policy, the continued high terms of trade, and increased fiscal stimulus,” Mr Spencer said.
He pointed out that the central bank had made provision for some of the new Labour coalition government’s new policies. "The Bank has incorporated preliminary estimates of the impact of new government policies in four areas: new government spending; the KiwiBuild programme; tighter visa requirements; and increases in the minimum wage. The impact of these policies remains very uncertain.
"House price inflation has moderated due to loan-to-value ratio restrictions, affordability constraints, reduced foreign demand, and a tightening in credit conditions. Low house price inflation is expected to continue, reinforced by new government policies on housing.”
