RBNZ leaves rates at historical low
(07 December 2012 – New Zealand) The Reserve Bank of New Zealand (RBNZ) has left the official cash rate unchanged at a low 2.5 percent and has hinted the first rate rise will not be until 2014.
RBNZ governor Graeme Wheeler attributed the decision to slow economic growth in recent months and inflation remaining low, while unemployment was continuing to rise.
'On balance, it remains appropriate for the OCR to be held at 2.5 percent,' he said in the central bank’s Monetary Policy Statement, which was seen as keeping rates firmly on hold.
The cash rate has been held at the historically low rate since March 2011, when it was dropped to help counter the impact of the Canterbury earthquake.
There was no hint that rates could be cut, despite extremely low inflation and high unemployment, so the statement was seen as 'hawkish' or tough on inflation by economists.
Unemployment at 7.3 percent, a 13-year high, was largely dismissed as a statistical blip and it should be back around 7 percent at the next reading.
Wheeler indicated that the first rate rise would not be until 2014, though ASB economists still expected it sooner, by September next year, because of a stronger growth outlook compared with the central bank's.
The RBNZ’s own 90-day interest rate forecast indicated the first move up in the OCR in March 2014, but it would only rise modestly after that.
The Reserve Bank said that despite a sluggish economy recently, in the next two years growth is expected to pick up to between 2.5 percent and 3 percent a year. The global outlook remained soft but was less threatening than earlier in the year.
In the statement, the Reserve Bank warned that if the housing market continued to gather steam, there was a risk of a stronger pick-up in household credit and rising house price inflation. Higher house prices and greater household spending was likely to lead to higher inflation than is currently projected.
'All else equal, such a development could necessitate a higher official cash rate,' the bank said. But government belt-tightening and cautious spending by households and businesses were offsetting factors for the economy.
The high New Zealand dollar remained a 'significant headwind' Wheeler said, restricting export earnings and encouraging demand for imports.
But the overall outlook was for stronger domestic demand and so 'excess capacity' in the economy would be eliminated by the end of next year.
'On balance, it remains appropriate for the OCR to be held at 2.5 percent,' he said in the central bank’s Monetary Policy Statement, which was seen as keeping rates firmly on hold.
The cash rate has been held at the historically low rate since March 2011, when it was dropped to help counter the impact of the Canterbury earthquake.
There was no hint that rates could be cut, despite extremely low inflation and high unemployment, so the statement was seen as 'hawkish' or tough on inflation by economists.
Unemployment at 7.3 percent, a 13-year high, was largely dismissed as a statistical blip and it should be back around 7 percent at the next reading.
Wheeler indicated that the first rate rise would not be until 2014, though ASB economists still expected it sooner, by September next year, because of a stronger growth outlook compared with the central bank's.
The RBNZ’s own 90-day interest rate forecast indicated the first move up in the OCR in March 2014, but it would only rise modestly after that.
The Reserve Bank said that despite a sluggish economy recently, in the next two years growth is expected to pick up to between 2.5 percent and 3 percent a year. The global outlook remained soft but was less threatening than earlier in the year.
In the statement, the Reserve Bank warned that if the housing market continued to gather steam, there was a risk of a stronger pick-up in household credit and rising house price inflation. Higher house prices and greater household spending was likely to lead to higher inflation than is currently projected.
'All else equal, such a development could necessitate a higher official cash rate,' the bank said. But government belt-tightening and cautious spending by households and businesses were offsetting factors for the economy.
The high New Zealand dollar remained a 'significant headwind' Wheeler said, restricting export earnings and encouraging demand for imports.
But the overall outlook was for stronger domestic demand and so 'excess capacity' in the economy would be eliminated by the end of next year.
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