Finance Minister supports Reserve Bank move to keep cash rate on hold

Finance Minister Grant Robertson is supporting the move to keep the Official Cash Rate on hold, referring to Wednesday's decision as "understandable". 

The Reserve Bank confirmed it would keep the Official Cash Rate (OCR) at 0.25 percent following the sudden move to COVID-19 level 4. Prior to the COVID-19 community outbreak, economists widely predicted the OCR would rise by 25 or 50 basis points in August.  ASB Bank forecasted three cash rate rises by the end of 2021.

By Wednesday evening, a total of 10 community cases of COVID-19 were confirmed, all epidemiologically linked to the original case, a 58-year-old tradesman from Devonport.

In a scheduled media conference on Wednesday afternoon, the Finance Minister said the Reserve Bank Monetary Policy Statement indicated the Reserve Bank's intentions around the OCR. 

The COVID-19 outbreak was confirmed on Tuesday - the day before it's scheduled announcement. It's decision to keep the OCR on hold was "understandable".

"I think it's pretty clear from reading the statement that the Reserve Bank Governor gave that there was a direction of travel the Monetary Policy Committee was looking at," Robertson said.

"But they had to deal with the situation that arose yesterday."

He reiterated the New Zealand economy is in a "strong position". Despite the additional new COVID-19 community cases, Robertson said he wasn't expecting a larger economic shock than the $1.5 billion he indicated was left in the COVID-19 Relief and Recovery Fund. 

"That didn't change our assumptions around the economy today...we knew that there would be more cases," Robertson said.

The Reserve Bank Monetary Policy Statement shows, despite no international travellers, the economy expanded 1.6 percent in the first quarter of 2021.  Household consumption increased 5.4 percent over the first quarter, supporting economic growth. Employment is at or above the maximum sustainable level.

Annual GDP (Gross Domestic Product) growth is forecast to rise to 4 percent in the December 2021 quarter.

"If you look across GDP growth, household spending, consumer confidence, business's all very, very strong," Robertson said.

"We've shown that the economy can be resilient in the face of these kinds of outbreaks and I'm confident that we will be here too."

Responding to questions about 40 percent revenue loss being a "hard and fast rule" for businesses applying for the wage subsidy, Robertson said greater flexibility, such as a "moving scale" of revenue loss, wasn't being considered, saying 40 percent was "about right".

"The great virtue of the wage subsidy has been it's simplicity and the speed at which we can deliver it."

"Any more caveats that we put upon it which slow that down...we have to have some kind of measure of the alert levels' effect on a business," Robertson said.

In addition to the COVID-19 wage subsidy available from Friday, the Resurgence Support payment represents an additional sum of money available to businesses. Firms will be able to access the payment from the seventh day of alert level 4, from August 24.

Referring to the country being at or above maximum sustainable employment, the Reserve Bank expecting employment to gradually increase over the year, Robertson said the Government was working with certain industries to work out how to bring in critical workers.

"Yes, there's some spare capacity in the labour market but is it the capacity that is needed for the skill gaps that we have," Robertson said.

The Government had the resources to meet current COVID-19 support measures put in place.  It wouldn't need to take on additional borrowing at this point.

"The New Zealand economy has recovered remarkably...we're in a much stronger starting point….we've also shown that we come back quickly [and] that exports maintain their value through," Robertson said.