Reserve Bank leaves OCR unchanged

  • 22/03/2018
Reserve Bank leaves OCR unchanged
Photo credit: Getty

Acting Reserve Bank governor Grant Spencer has kept the official cash rate unchanged at 1.75 percent and continued to signal that rates will remain on hold due to the lack of inflationary pressure.

"Monetary policy will remain accommodative for a considerable period," Mr Spencer said on Thursday morning.

"Numerous uncertainties remain and policy may need to adjust accordingly."

All 13 economists polled by Bloomberg had predicted the official cash rate would stay unchanged, with the median expecting the bank to stay on hold until at least 2019.

The New Zealand dollar dipped slightly to US72.29 cents from US72.34c just prior to the release.

Mr Spencer said inflation was expected to "weaken further in the near term due to softness in food and energy prices and adjustments to government charges."

However, over the medium term, CPI inflation is forecast to trend upwards towards the midpoint of the target range. Longer-term inflation expectations are well anchored at 2 percent, he said.

New Zealand's consumer price index rose 1.6 percent in calendar 2017.

The Reserve Bank is mandated with keeping annual inflation between 1-and-3 percent over the medium term with a focus on the mid-point.

However, inflation has remained stubbornly weak, only pushing up to a 2.2 percent annual pace briefly in the 2017 March quarter before dipping back to 1.7 percent in the June quarter and 1.9 percent in the September quarter.

Mr Spencer noted growth was weaker than expected in the fourth quarter, mainly due to weather effects on agricultural production.

However, growth was expected to strengthen, supported by high terms of trade, government spending and population growth, he said.

Labour market conditions were also projected to tighten further.

Mr Spencer's decision comes in the wake of the US Federal Reserve lifting the fed funds rate a quarter point to a range of 1.50 percent to 1.75 percent, with the top of the range now in line with the RBNZ's official cash rate.