The Reserve Bank of New Zealand has left its key interest rate, the Official Cash Rate (OCR) steady at 1.75% in a carbon copy of the Reserve Bank of Australia’s move and reasoning earlier this month.
Both central banks say that monetary policy will remain “accommodative” for sometime yet because of the uncertainties that still lie ahead.
In the case of the RBNZ it held out the hint of rate cuts if those uncertainties become too challenging (unlike the RBA which sent a signal that rates are on hold for a while).
The RBA seems more upbeat about the outlook for the Australian economy (especially in the minutes of the June meeting released this week), than the RBNZ, even though the Kiwi economy is doing better with stronger GDP growth (0.5% in the March quarter against 0.3%) and lower unemployment (4.9% against Australia’s 5.5%).
But both economies share the current ill of low growth in wages and household incomes – with rising debt (more worrying in Australia) and no sign of an improvement on the horizon.
Since the RBA’s meeting on June 6, commodity prices, led by oil, have tumbled, putting further downward pressure on inflation. And last week’s rate rise from the US Federal reserve has failed to have any impact on the value of the Australian and Kiwi dollars.
“Monetary policy will remain accommodative for a considerable period,“ the RBNZ said in today’s statement. “Numerous uncertainties remain and policy may need to adjust accordingly,” the statement concluded with the suggestion rates could be cut in future if need be.
"GDP growth in the March quarter was lower than expected, with weaker export volumes and residential construction partially offset by stronger consumption. Nevertheless, the growth outlook remains positive, supported by accommodative monetary policy, strong population growth, and high terms of trade. Recent changes announced in Budget 2017 should support the outlook for growth,” the RBNZ said.
"House price inflation has moderated further, especially in Auckland. The slowdown in house price inflation partly reflects loan-to-value ratio restrictions, and tighter lending conditions. This moderation is projected to continue, although there is a risk of resurgence given the on-going imbalance between supply and demand.
The increase in headline inflation in the March quarter was mainly due to higher tradables inflation, particularly petrol and food prices.These effects are temporary and may lead to some variability in headline inflation.
"Non-tradables and wage inflation remain moderate but are expected to increase gradually. This will bring future headline inflation to the midpoint of the target band over the medium term. Longer-term inflation expectations remain well-anchored at around 2 percent,” the statement said.
