Unlike the US, but very much like the Australian economy, New Zealand’s economy is growing solidly, and yet doesn’t need any extra stimulation from a rate cut, but doesn’t need a slight hand on the tiller from a rate rise.
In fact, the Kiwi economy is facing up to two years more of no move in rates, unless things get out of hand, or suddenly slump.
Hard on the heels of the latest rate rise from the US Federal Reserve, the Reserve Bank of New Zealand yesterday maintained its highly accommodative monetary policy stance, leaving the Official Cash Rate unchanged on 1.75%.
And in the statement, RBNZ Governor Adrian Orr said the cash rate would be left unchanged into 2020, but he qualified that saying; “The direction of our next OCR move could be up or down.”
From what Governor Orr said later in the statement, any move, let alone an increase from the current level – is very remote.
In fact, it is a situation very similar to that faced by the Reserve Bank in Australia which remains in the same policy stance – accommodating, as we will find out next Tuesday at its October policy meeting
“We will keep the OCR at an expansionary level for a considerable period to contribute to maximizing sustainable employment, and maintaining low and stable inflation,” he said.
He said the NZ economy was doing well with employment around its sustainable level and consumer price inflation remaining below the 2% mid-point of the bank’s target.
While GDP growth in the June quarter was stronger than we had anticipated, downside risks to the growth outlook remain.
“Robust global economic growth and a lower New Zealand dollar exchange rate is expected to support demand for our exports.
“Global inflationary pressure is expected to rise, but remain modest. Trade tensions remain in some major economies, increasing the risk that ongoing increases in trade barriers could undermine global growth. Domestically, ongoing spending and investment, by both households and government, is expected to support growth.
“There are welcome early signs of core inflation rising towards the mid-point of the target. Higher fuel prices are likely to boost inflation in the near term, but we will look through this volatility as appropriate. Consumer price inflation is expected to gradually rise to our 2 percent annual target as capacity pressures bite.”
That, however, means “continued supportive monetary policy. Our outlook for the OCR assumes the pace of growth will pick up over the coming year, assisting inflation to return to the target mid-point,” he said.
For Australian companies, especially the big banks, the outlook is very similar on both sides of the Tasman for the foreseeable future.
