The Reserve Bank has signalled interest rates are in a holding pattern, and the next move could be up or down.
The Reserve Bank governor has reiterated that interest rates could be on hold for some time. Photo: RNZ / Alexander Robertson
In a speech in Auckland this morning, its governor, Graeme Wheeler, told a business audience the risks were evenly balanced.
"We consider the balance of risks for the global outlook to be downside," Mr Wheeler said.
"For the domestic economy, there is some potential upside for output growth if migration and commodity prices turn out to be stronger than forecast, but the risks around inflation look balanced."
The central bank forecasts the official cash rate (OCR) to remain at a record low 1.75 percent until late 2019.
Mr Wheeler said the greatest source of uncertainty was the 'America first' policies of United States president, Donald Trump.
"Although a substantial US fiscal stimulus could be positive for growth in the global economy, the prospect of a marked increase in protectionism - coming at a time when global trade is growing slowly and trade disputes are increasing - would be expected to have sizeable impacts on the global economy."
"New Zealand would not fare well in such circumstances," Mr Wheeler said.
New Zealand's robust housing market also continued to worry the Reserve Bank.
Household debt has risen to about 165 percent of household disposable income, up from 100 percent in 2000, while the share of lending at debt-to-income ratios of over five and six has increased steadily since September 2014.
"The greatest source of uncertainty currently lies around the housing market and the possibility that imbalances in the housing market might deteriorate," Mr Wheeler said.
"Fortunately, house price inflation has moderated substantially in recent months, but it's too early to say whether this moderation will continue."
Economists said Mr Wheeler's speech expanded on what he had previously said in the February Monetary Policy Statement (MPS), and reiterated the central bank's message that interest rates are on hold for some time.
Financial markets were largely unmoved by the speech, with little change in the New Zealand dollar.