RBNZ watching inflation closely, has no plans to increase OCR
(1 May 2015 – New Zealand) Low interest rates, high net immigration and construction activity along with a fall in fuel prices have all helped New Zealand’s economy continue to grow at 3 percent, leaving room for the Reserve Bank of New Zealand (RBNZ) to leave the Official Cash Rate at 3.5 percent.
In a statement issued by RBNZ governor Glenn Stevens following the decision on 30 April, the Board decided to monitor and carefully assess the emerging flow of economic data before any OCR movement.
Monetary policy will remain stimulatory with no increase in interest rates on the cards.
The RBNZ said it was worried about lower dairy incomes, lingering effects of drought, fiscal consolidation and the high exchange rate as well as the elevated house price inflation in Auckland.
Lower fuel prices, coming on top of the high exchange rate and low global inflation, lowered annual CPI inflation to 0.1 percent in the March quarter.
Underlying inflation remains low and is expected to pick up gradually.
The RBNZ said its monetary policy will focus on the medium-term trend in inflation.
“We are watching closely the ongoing impact on tradables inflation from global forces and the high New Zealand dollar.
“On a trade-weighted basis, the New Zealand dollar continues to be unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals.
“The appreciation in the exchange rate, while our key export prices have been falling, is unwelcome.”
The timing of future adjustments in the OCR will depend on how inflationary pressures evolve in both the non-traded and traded sectors.
“It would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target,” the statement said.
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