ibusinesslines.com August 22, 2017

New Zealand holds interest rate at record low

10 August 2017, 03:05 | Melissa Porter

Cameron Burnell Fairfax NZ Reserve Bank governor Graeme Wheeler's five-year term ends next month

Reserve Bank governor Graeme Wheeler's five-year term ends next month

New Zealand's central bank left its official cash rate (OCR) unchanged at 1.75 percent on Thursday.

According to RBNZ policy makers, global economic growth increased and became more broad-based but wage growth subdued due to surplus capacity.

RBNZ Assistant Governor John McDermott told Reuters this most subtle of changes was aimed at communicating the bank's growing discomfort to the market, while recognising that some would have been disappointed they didn't use stronger language.

Many of those factors were worldwide in nature, and Wheeler gave MPs a piece of advice in recognising that New Zealand's economy is hugely influenced by overseas events.

"It's fair to say the market should recognise our discomfort with what happened", he said referring to the currency's rise.

In the first quarter of this year, New Zealand's economy grew a below trend 0.5%, after an anemic 0.4% expansion in the fourth quarter blamed on temporary factors including an natural disaster.

Labour productivity shrank 0.1 percent in the 2017 March year after contracting 0.2 percent in 2016, although the central bank predicts it will hit 0.9 percent by 2020, the end of its forecast horizon, which would be the highest level since 2011.

But the changes to its forecasts were limited.

In a note before the release, Bank of New Zealand currency strategist Jason Wong said he expected Wheeler "to play with a straight bat in his final showing as governor" and that the "underlying message will be that the RBNZ is in no hurry to join some other major central banks in looking to remove policy accommodation".

"The trade-weighted exchange rate has increased since the May Statement, partly in response to a weaker USA dollar", RBNZ Governor Graeme Wheeler said in a statement.

At the May MPS, only one quarter-point rate hike was projected by 2020 and there has been speculation Thursday's forecasts will be just as flat.

New Zealand has seen some of the fastest growth among advanced economies in recent years, but recent data pointed to a loss of momentum.

The central bank also said a lower New Zealand dollar would be favourable.

"This moderation is expected to persist, although there remains a risk of resurgence in prices given continued strong population growth".

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