The Reserve Bank of New Zealand has left its official cash rate at 0.25% as expected.
That means the country’s key rate hasn’t changed for 14 months and there doesn’t look much reason for a change any time soon.
The Reserve Bank said in a post meeting statement that the global economic outlook had continued to improve, but as expected balanced its more positive comments, saying the sustainability of the global economic recovery remained dependent on the containment of Covid.
“Confidence in the outlook is rising as the more extreme negative health scenarios wane given the vaccination progress globally,” it said.
“We remain cautious however, given ongoing virus-related restrictions in activity, the sectoral unevenness of economic recovery, and the weak level of business investment.”
The medium-term outlook for NZ economic growth remained similar to the one the Reserve Bank last made in February.
But in something of a surprise, the central bank revealed its hand on the outlook for rates in its latest Statement Of monetary Policy that was released yesterday as well, saying that “on current projections the OCR (Official Cash Rates) eventually increases over the medium term”.
The projections the Reserve Bank released alongside its statement would see the cash rate start rising late next year, in line with most banks’ forecasts, and hit 1.75% by mid-2024.
The Reserve Bank hedged that by saying in commentary with the projections that was conditional on the economic outlook evolving broadly as anticipated and again talked of the need for “considerable time and patience”.
But markets appeared to focus on the acknowledgement of the possibility of higher rates, with the New Zealand dollar climbing 60 points (0.6 of a US cent) to 73 US cents after the monetary policy statement was released.
“A range of international and domestic factors are currently resulting in rising costs for businesses and consumers. These factors include disruptions to global raw material supplies, higher oil prices, and pressure on shipping arrangements. These price pressures are likely to be temporary and are expected to abate over the course of the year,” the statement said, echoing similar comments about the rise in inflation from central banks in Australia, the US, UK and Europe.
“The Committee noted that medium-term inflation and employment would likely remain below its Remit (the agreement with the NZ Government) targets in the absence of prolonged monetary stimulus.
“The Committee also noted that while the low interest rate environment has supported house prices, other factors such as recent tax changes, the growing supply of housing, and lending restrictions, are providing offsetting pressures.
“The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained near the 2 percent per annum target midpoint, and that employment is at its maximum sustainable level. Meeting these requirements will necessitate considerable time and patience,“ the RBNZ said.
