What a difference two little words make.
Reserve Bank governor Graeme Wheeler this morning issued his first official cash rate (OCR) review and largely stuck to the script of his predecessor Alan Bollard.
There is only one subtle change in today's statement: Mr Wheeler says it is appropriate to hold the OCR at 2.5% "for now".
Dr Bollard's more recent statements omitted the "for now" part of that line.
That raises the question of whether the next move is up or down. On this, the market and the economists who follow the New Zealand economy are pointing in different directions.
The overnight index swap (OIS) markets have priced in a rate cut by early next year, while none of the economists are forecasting one – although at least one thinks Mr Wheeler should cut OCR – and all expect rises to start in the second half of 2013 or sometime in 2014.
Today's statement hints indirectly at the next move being up rather than down. Mr Wheeler lists eight factors he is taking into account.
Five of these weigh towards a rate rise and three towards a rate cut, with one of these now moving more towards neutral.
Economic drivers pushing towards a rate rise are:
- Inflation rising to the middle of the target range over the coming year.
- GDP growing, albeit at a "modest" pace.
- An improvement in market sentiment.
- Housing market increasing "as expected" (and more on this below).
- A construction sector boost from the Canterbury rebuild.
Weighing towards a cut are the high New Zealand dollar, tighter fiscal policy from the government and a "fragile" global economy, although Mr Wheeler says market sentiment has improved and the global risks are now more balanced than they were.
A key question hanging over today's statement is how he sees recent developments in the housing market.
The new policy targets agreement signed with Finance Minister Bill English last month adds a new clause requiring the Reserve Bank to take into account asset price rises and their impact on the wider economy.
The question was whether Mr Wheeler would interpret the recent surge in housing demand, particularly in Auckland, as an inflationary concern.
Today's statement suggests not – or not yet, anyway.
The housing market is proceeding along unsurprising lines, Mr Wheeler says.
On inflation overall, the central bank is content to watch and wait – and warn.
"While annual CPI inflation has fallen to 0.8%, the bank continues to expect inflation to head back towards the middle of the target range," Mr Wheeler says. The target band is 1% to 3% in the consumer price index (CPI).
"We will continue to monitor inflation indicators, such as pricing intentions and inflation expectation data, closely over the coming months."
The next OCR review – which will, unlike today, include an updated set of economic forecasts – is scheduled for December 6.