Drought balances increasing housing, RBA leaves OCR on hold
(15 March 2013 – New Zealand) The Reserve Bank of New Zealand (RBNZ) has left the official cash rate steady at 2.5 percent and expects it to remain "unchanged through the end of the year".
In its Monetary Policy Statement issued on Thursday morning, the central bank said there were 'both upside and downside risks to the [economic] outlook'.
The bank's projections pointed to the first interest rate rise not coming until next year.
The RBNZ warned again about rising house prices, but noted the impact of the growing drought.
The Reserve Bank also pointed to the 'overvalued' New Zealand dollar, which was undermining profits in export and import-competing industries.
'Worsening drought conditions are creating difficulty in much of the country,' RBNZ governor Graeme Wheeler said.
'Hot dry weather has resulted in challenging farming conditions in much of the country, with drought declared in many parts of the North Island,' the statement said.
Milk production was likely to be significantly affected in the second half of the season.
'Continued drought would have a marked negative impact on aggregate economic output,' the bank said.
Government belt-tightening would also slow overall demand.
But the downside risks around global growth had lessened in recent months and financial market sentiment had improved.
Demand and business output were rising, but the job market remained weak, with unemployment still close to 7 percent.
The Canterbury rebuild, after the earthquake two years ago, was gaining momentum.
House building and business and consumer confidence were lifting.
'House-price inflation is increasing,' Wheeler said.
House prices rose about 6 percent last year, and were forecast by the central bank to rise 6.2 percent this year and 3.6 percent in 2014, before levelling off.
'The bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply,' Wheeler said.
Inflation was presently subdued, up just 0.9 percent last year and under the bank's target band. Inflation was likely to remain low in the near term, only rising back to 2 percent a year by late 2015. But the central bank pointed out that inflation was low mainly because of a high New Zealand dollar.
The bank's projections pointed to the first interest rate rise not coming until next year.
The RBNZ warned again about rising house prices, but noted the impact of the growing drought.
The Reserve Bank also pointed to the 'overvalued' New Zealand dollar, which was undermining profits in export and import-competing industries.
'Worsening drought conditions are creating difficulty in much of the country,' RBNZ governor Graeme Wheeler said.
'Hot dry weather has resulted in challenging farming conditions in much of the country, with drought declared in many parts of the North Island,' the statement said.
Milk production was likely to be significantly affected in the second half of the season.
'Continued drought would have a marked negative impact on aggregate economic output,' the bank said.
Government belt-tightening would also slow overall demand.
But the downside risks around global growth had lessened in recent months and financial market sentiment had improved.
Demand and business output were rising, but the job market remained weak, with unemployment still close to 7 percent.
The Canterbury rebuild, after the earthquake two years ago, was gaining momentum.
House building and business and consumer confidence were lifting.
'House-price inflation is increasing,' Wheeler said.
House prices rose about 6 percent last year, and were forecast by the central bank to rise 6.2 percent this year and 3.6 percent in 2014, before levelling off.
'The bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply,' Wheeler said.
Inflation was presently subdued, up just 0.9 percent last year and under the bank's target band. Inflation was likely to remain low in the near term, only rising back to 2 percent a year by late 2015. But the central bank pointed out that inflation was low mainly because of a high New Zealand dollar.
Subscribe