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Financial News: New Zealand Holds Rate Steady Unexpectedly

New Zealand Holds Rate Steady Unexpectedly

11/13/2019 - 00:35:00 (RTTNews)

(RTTNews) - New Zealand's central bank left the key interest rate unchanged on Wednesday, defying expectations for a reduction, and signaled that it was ready to add more stimulus if needed, in the backdrop of subdued growth and below-target inflation.

The Monetary Policy Committee of the Reserve Bank of New Zealand, led by Governor Adrian Orr, decided to keep the Official Cash Rate, or OCR, at 1.0 percent. Economists had expected a quarter-point reduction to 0.75 percent.

In the previous policy session in September, the bank left the rate unchanged after slashing it by 50 basis points in August in a surprise move. The bank lowered the rate twice this year. In May, the rate was slashed by a quarter-basis points.

"We expect economic growth to remain subdued over the remainder of the calendar year," Orr said in the policy statement.

"We will continue to monitor economic developments and remain prepared to act as required."

Further, Orr said in the post-decision press conference that rate-setters saw "no urgency to act" as the policy remained "very stimulatory".

ING economist Robert Carnell said Orr's remarks sounded as if it is the last cut in this series, which was "a little contrary to any suggestion after the rate decision had been published, that the RBNZ might try to talk the market back down."

"Although Orr did note that the RBNZ would add further stimulus if needed, it is also apparent that he didn't think they would have to," the economist added.

The bank slashed the quarterly growth forecast for the December quarter to 0.6 percent from 0.7 percent seen in the August policy statement. The full year growth outlook for this year was retained at 2.7 percent, while the growth projection for 2020 was lowered to 2.1 percent from 2.4 percent.

The minutes of the latest policy meeting showed that MPC members took note of the near-term downside risks to the economy.

"The Committee agreed that accommodative monetary policy remains necessary to continue to meet their inflation and employment objectives," the minutes said.

Policymakers anticipated a lift in economic growth during 2020 from the easing of monetary policy that has taken place since early 2019 and from stronger fiscal stimulus.

"The Committee agreed that the reduction in the OCR over the past year was transmitting through the economy and that it would take time to have its full effect," the minutes added.

Meanwhile, results of the RBNZ's quarterly survey of expectations, released on Tuesday, showed that the two-year inflation expectations dropped to 1.8 percent from 1.86 percent in the September survey.

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