RBNZ's Spencer keeps OCR at 1.75%

Acting Reserve Bank governor Grant Spencer says "Numerous uncertainties remain and policy may need to adjust accordingly."

Jenny Ruth on the Reserve Bank holding the OCR.

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(BusinessDesk) - Acting Reserve Bank governor Grant Spencer kept the official cash rate unchanged at 1.75 percent and continued to signal rates won't lift until the latter half of next year at the earliest due to the lack of inflationary pressure. The kiwi fell. 

"Monetary policy will remain accommodative for a considerable period," Spencer said in a statement. "Numerous uncertainties remain and policy may need to adjust accordingly."

The consumers price index rose at a slower pace than expected in the December quarter due to cheaper food and transport prices, continuing the trend of inflation undershooting predictions. All 12 economists polled by Bloomberg predicted the OCR would stay unchanged.

"Annual CPI inflation, at 1.6 percent, was lower than forecast for the December 2017 quarter. Measures of underlying inflationary pressure remain low," the monetary policy statement said. The RBNZ expects headline inflation "to fluctuate over the coming year, partly as a result of variable tradables inflation and the removal of fees for the first year of tertiary education," the central bank said. 

The Reserve Bank now sees annual inflation at 1.1 percent in the March quarter versus a prior forecast of 1.5 percent. It does not expect inflation to return to the mid-point of its 1 percent-to-3 percent target band until September 2020 versus a prior forecast of June 2018. 

While the central bank lowered its inflation expectations it did not change its forecast track for the OCR. The bank forecasts the OCR rising to 1.9 percent in June 2019, unchanged from its prior projection in November. A full rate increase is still signalled by March 2020 when the benchmark rate is forecast to be 2 percent. The key rate is seen at 2.3 percent in December 2020 and 2.3 percent in March 2021, the end of the forecast period. 

"A clear theme of inflation remaining lower for longer is emerging," said ASB Bank economists. Against that backdrop, "the risk is the RBNZ can afford to wait longer until lifting the OCR than our long-held view of February 2019," it said.  

The Reserve Bank noted the New Zealand dollar is higher than it forecast in November "due in large part to a weak US dollar." However, "we assume the trade-weighted exchange rate will ease over the projection period," Spencer said. The New Zealand dollar fell after the statement and recently traded at 72.34 US cents from 72.56 cents immediately before its release.

While the central bank expects the New Zealand dollar to fall, it did say if demand for New Zealand dollar assets were to increase, reflecting higher global investor risk appetite, the exchange rate could remain higher than assumed. In that scenario "a lower OCR would be warranted," it said. 

It also lowered its forecasts for economic growth in short-term, while raising them over the medium term. The RBNZ expects economic growth of 0.8 percent in the March quarter, versus a prior forecast of 1.2 percent, after it revised down the impact of new government policies in the short term as "the degree of fiscal stimulus is smaller than assumed in the November Statement," it said.  Among other things, the KiwiBuild housing policy is assumed to add to residential investment later in the projection. The policy targets 100,000 affordable houses being built over the next decade.

While growth is lower in the short term, annual gross domestic product growth is projected to average 3.2 percent over the forecast horizon. "This above-trend pace of growth is expected to generate an increase in capacity pressure and lift inflation to around the midpoint of the bank’s target range in the medium term," it said. 

The MPS was the last full review of monetary policy before Adrian Orr begins as governor in March and signs a new policy targets agreement (PTA) with Finance Minister Grant Robertson.


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23 Comments & Questions

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They need to put it up. The GFC is over. Emergency measures now not needed. Time for the savers to get a decent return on their money, without having to take on the risky investments.

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You do realise it's a doubled-edged sword, right?

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Not for the mortgage free.

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and the business startups that rely on borrowing?

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Oh yes it is. Their asset value will drop.

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Behind the curve RBNZ.

Always was and forever will be.

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In my humble opinion, policy settings should aim for:
Inflation 2% to 3 %
Savings rates 5% to 6%
Borrowing rates 7% to 8%
Gives savers a reasonable return above inflation.
If borrowers can't afford these rates, then they shouldn't be borrowing. Otherwise just get a subsidy from savers as they have been for past decade.

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with savings rates that high, where will the NZ$ go?

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"If borrowers can't afford these rates..........."
Well the saver gets nothing if the borrower will not borrow.
Learn your economics at Uni did you? Same class as Brash?

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They should have dropped it down to 1.25 %, which would create lower borrowing rates for business, which would create more jobs, meaning we would have zero unemployment -- a world first. The trouble with these people is they always want control over you.

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What you really meant to say is that you have a mortgage to pay off, and lowering the rate would be less for you to have to pay. You've had it good for ages, and like all you lot, as soon as you've got it paid off, you start moaning about not getting a decent return on your savings. You can't have it both ways.

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NO,I haven't got a mortgage, end of story.

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Actually, I don't have money sitting in the bank, it's in cashflows.

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If it was that simple why isn't everyone doing it?

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Yeah, let's just sacrifice the few prudent elderly savers trying to live off their paltry returns onto the greater good of that debt mountain.

The Great Collapse of central banking isn't far off, tremors of it this week: cause ... debt. Insane amounts of it created by stimulunacy, and ludicrously low rates and the myth being spun of synchronised world growth.

But I've done all this.

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Remember when we all used to have savings accounts at the NZPO? Nearly all school children had one ; and the interest rate was around 2-3% from memory.
1960 . . . last millenium :-)

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Then they went to 18% ;)

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You mean Brash became Governor of the Reserve Bank and artificially by regulation raised the OCR.

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Under 5 % means the unemployable. The ones with lots of tats, dont turn up to work on Monday morning and if they do are either boozed or drugged or both.

Same with benes excluding Super and genuine Sickness and genuine DPB.

5% are always going to be on the benefit.

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"Global economic growth continues to improve. While global inflation remains subdued, there are some signs of emerging pressures. Commodity prices have increased, although agricultural prices are relatively soft. International bond yields have increased since November but remain relatively low. Equity markets have been strong, although volatility has increased recently. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory."

This is, by far, the wishy-washiest, BS statement I have ever heard! Jeez, get the new Governor in and get some real statements out with an actual plan based on the reality of the changing global situation!

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Unemployment at all time low but under employment at all time high.

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What we do know is that it will be whatever we don't see or expect. And whatever that is, you and I have very little control over it.
We have far too much debt. Everyone's got far too much debt. Especially countries but also the banks and individuals/businesses.
The value of money has plummeted over the past decade. This can't last. We've been on life-support for at least that.
Someone's going to get hurt.

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One wonders how our export returns would look if the NZ dollar had been sitting around, say, $US0.65 over the past year or two. Ok, the $2 shops would feel the pinch but the regions would be thriving. Can someone do the arithmetic?
Winston wanted a lower dollar but globe-trotting seems to be his obsession.

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