Reserve Bank tipped to hold steady in regular review

Reserve Bank tipped to hold steady in regular review
Photo credit: RNZ

By Gyles Beckford for RNZ

A 'steady as it goes' statement with a reaffirmation of easy monetary policies and an uncertain economic outlook are expected to be the key messages from the Reserve Bank (RBNZ) in its regular policy and rate review this week.

The central bank is expected to hold its official cash rate at 0.25 percent, and leave other key policies - the Large Scale Asset Programme (LSAP) and Funding for Lending Programme (FLP) - unchanged, as it maintains its path of least regrets.

"We expect a good deal of cut and paste from February's statement, in particular that the economy is still rather vulnerable and therefore monetary stimulus is still warranted, and if some of the downside risks come to fruition they stand ready to act if required," ANZ chief economist Sharon Zollner said.

She said the economic outlook had changed since the February statement, such as the weak fourth-quarter growth numbers which the RBNZ had partly anticipated, along with a rise in inflationary pressures.

"These price rises are largely in tradable goods, imported goods and commodities, and that is the sort of inflation the Reserve Bank will prefer to look through if they can, it's not growth friendly so you wouldn't want to raise interest rates to head off inflation and hit growth harder," Zollner said.

Other factors for the RBNZ to be mindful of were the government's housing policy changes aimed at cooling rocketing prices, and the opening of a travel bubble with Australia.

Economists generally agreed that the RBNZ will continue to highlight uncertainty, and downside risks at home and abroad, and repeat a willingness to give more support to the economy if necessary.

"Any further easing would most likely be in the form of a negative OCR [official cash rate], and the RBNZ will again emphasise that it is both willing, and now able, to do so after last year's preparation work," Westpac acting chief economist Michael Gordon said.

The growing inflation pressures prompted some analysts to speculate on possible interest rate rises, although the government housing policy dampened those expectations.

The central bank is not expected to do or say anything that would revive them. A tentative view has formed that the RBNZ will start lifting the OCR in the second half of next year, although some see the rate on hold well into 2023 and beyond.