Reserve Bank hangs fire and says the OCR will remain low

Acting Reserve Bank governor Grant Spencer says monetary policy needs to remain accommodative.

Jenny Ruth on acting RBNZ governor Grant Spencer’s final OCR decision

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As expected, acting Reserve Bank governor Grant Spencer has left the official cash rate unchanged and says monetary policy will remain accommodative for a considerable period.

The official cash rate remains at its record low 1.75%.

“Numerous uncertainties remain and policy may need to adjust accordingly,” Mr Spencer says in a statement.

“GDP was weaker than expected in the fourth quarter, mainly due to weather effects on agricultural production,” he says.

“Growth is expected to strengthen, supported by accommodative monetary policy, high terms of trade, government spending and population growth. Labour market conditions are projected to tighten further.”

Mr Spencer says residential construction continues to be hindered by capacity constraints but the Kiwibuild program is expected to contribute to housing growth from 2019.

“House price inflation remains moderate, with restrained credit growth and weak house sales.”

The statement says inflation will probably weaken further in the near term due to softness in food and energy prices and adjustments to government charges.

“Tradeables inflation is projected to remain subdued through the forecast period.” The central bank forecasts three years ahead.

“Non-tradeables inflation is moderate but is expected to increase in line with a rise in capacity pressure.”

As usual, the Reserve Bank says it expects inflation to trend upward over the medium term towards the midpoint of its 1-3% target range.

Mr Spencer says the outlook for global growth continues to gradually improve and commodity prices and agricultural prices are trending higher.

His statement comes two hours after the Federal Reserve in the US raised rates there by 0.25 basis points, a move financial markets had expected.

More to come.


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12 Comments & Questions

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Nz could have same OCR as Fed funds rate by end of the year if this carries on. Probably been decades since that happened, NZ economy has changed structurally, for the better since Cullen and his clown show departed. Let's hope the latest lot of Labourlites don't send us backwards.

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He should have cut the ocr down to 1.5% at least.

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So you could pay less on your mortgage. Self-interest comments here.

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No I don't have a mortgage.

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In fact the OCR needs to be raised to reduce out of control issuance of mortgages, given increasing risks from money borrowed offshore. Meanwhile savers continue to be punished by the Reserve Bank (low interest on deposits) whilst refusing to act on imported inflation due to the lower exchange rate.

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You've just gone over Gary's head with those comments.

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Maybe you "punished savers" should just put your wine glasses down, get off your arses and do something productive with your inheritance!

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You mean like give it away to types like you that will just go and blow it all on a pipe dream. Do you ever do it with your own money, or always someone else's?

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No, I said " ..... do something productive with..... ".
What part of that do you not understand?

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Last year economists and media were predicting interest rate rises, slowing the market ? Their predictions were wrong and most banks have lowered their interest rates to record lows this year.

History of the housing market is factual and it always doubles in value within the cycle every decade regardless of Interest rate fluctuations or political Influence.

Under Labour's Helen Clark house prices doubled.

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Grudgingly, one must commend RBNZ for holding fire - the signs of slowdown are out there. Once the business unfriendly & free spending economic policies take hold and anti-foreigner rules kick in, watch the economy dip and dip. NZ is going to need all the cushion it can get from low interest rates.

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And Winston could well get the recession he almost begged for during the Election. And Shane Jones would flash the taxpayer wallet and try and buy the provinces way out of it. This will fail as the Coalition's muddled policies will engender a slower growth, higher cost, economy that will be less competitive in offshore markets and at home.

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