Business

Reserve Bank keeps OCR at 1.75%

12:22 pm on 23 March 2017

The Reserve Bank (RBNZ) has kept the benchmark Official Cash Rate on hold at its record low of 1.75 percent.

Graeme Wheeler Photo: RNZ

Governor Graeme Wheeler said the economy was expected to keep growing strongly, while the housing market was showing signs of levelling out.

Inflation was picking up but was expected to remain subdued for some time, so no change was needed to interest rates in the near term.

However, Mr Wheeler said, the New Zealand dollar had to fall and there was plenty of uncertainty, which meant rates would stay low for some time.

"Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly," Mr Wheeler said in a statement.

The tone and wording of the statement was similar to the one issued last month, which also included forecasts showing the official cash rate on hold until at least the end of 2018.

Mr Wheeler said the world economic outlook was improving but there was still plenty of slack and much uncertainty on the political front, and this was expected to mean world interest rates will remain low, although he noted they have already started to rise in the United States.

He said the New Zealand economic outlook was positive with strong immigration gains, household spending and construction, and would benefit from a further fall in the currency.

"House price inflation has moderated, and in part reflects loan-to-value ratio restrictions and tighter lending conditions. It is uncertain whether this moderation will be sustained given the continued imbalance between supply and demand."

An economist said there was little that was new in the latest RBNZ statement.

"The RBNZ has noted indications of stronger global growth but talked up the global political risks ... [but] has downplayed some of the recent domestic growth weakness and is encouraged by the lower NZ dollar," said ASB chief economist Nick Tuffley.

"We continue to expect the RBNZ will leave the OCR on hold until late 2018."

Recent polls of economists still expected no rate rise until the middle of next year at the earliest, although financial markets were betting on a quarter of a percentage point rise by March next year.

The New Zealand dollar rose about a quarter of a cent after the statement, but has since given back the gains. Wholesale interest rates were unmoved.