Business

Reserve Bank holds interest rates at 1.75%

10:45 am on 9 November 2017

The Reserve Bank has left its cash rate unchanged at 1.75% and reconfirmed it will stay on hold for the forseeable future.

The central bank kept the benchmark rate steady, at the record low, because of subdued inflation, a cooling housing market, and uncertainty about the effect of new government's policies.

Acting Reserve Bank Governor Grant Spencer Photo: RESERVE BANK

The short statement from RBNZ's acting governor Grant Spencer was similar to previous statements this year, pointing to solid growth, which is expected to pick up after a soft spot and average around 3.3 percent for the next couple of years.

"Employment growth has been strong and GDP growth is projected to strengthen, with a weaker outlook for housing and construction offset by accommodative monetary policy, the continued high terms of trade, and increased fiscal stimulus."

Mr Spencer said the heat was coming out of the housing market, because of the loan to value ratios and higher rates, and said it was possible the new government's policies would be a further dampener on inflation.

He said it had figured in several of the Labour-led coalition's policies in housing, wages, immigration, and increased government spending.

It expected some upward pressure on wage inflation and further falls in immigration, but said there was uncertainty about the details of many policies.

Mr Spencer said there was no need to change rates at present.

"Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly."

The statement said if the recent fall in the New Zealand dollar was sustained it would help to balance growth. The currency has fallen about 5 percent since the election because of the political uncertainty of the result and then the forming of the Labour-led coalition.

The Official Cash Rate has been at the current record low for a year and analysts expect it to remain that way at least until late next year.

"The RBNZ has opened the door the tiniest crack in the direction of earlier OCR hikes than previously advertised," said Westpac chief economist Dominick Stephens.

However, he thought the central bank was being too optimistic in its growth forecasts.

"In our view, over the course of 2018 the RBNZ will be disappointed by the state of economic growth and will become more dovish."

"We remain comfortable forecasting no change in the official cash rate until December 2019, with gradual hikes after that," Mr Stephens said.

Mr Spencer will head the Reserve Bank until next March pending the appointment of a permanent successor for Graeme Wheeler, who left in September.

The new governor will have an expanded mandate with the addition of a requirement to maximise employment as well as keeping inflation in the target 1-3 percent target band.