The RBNZ isn’t rushing to lift interest rates

Hector Retamal / AFP / Getty Images

The Reserve Bank of New Zealand (RBNZ) kept interest rates unchanged at 1.75% at its March monetary policy meeting, maintaining the status quo that’s been in place since September 2016.

The result was entirely expected by markets, especially as this was acting RBNZ Governor Grant Spencer’s last meeting in charge before new RBNZ Govenor Adrian Orr takes the reins later this month.

With no economic projections released at this meeting, all focus was on the RBNZ’s post-meeting monetary policy statement.

There were few surprises when it came to the key areas for policy consideration.

On the inflation outlook, the RBNZ said that it is “expected to weaken further in the near term”, citing “softness in food and energy prices and adjustments to government charges”.

Over the medium term, however, it said that inflation is “forecast to trend upwards towards the midpoint of the target range” of 1 to 3%.

The RBNZ also acknowledged weaker-than-expected economic growth in the final quarter of 2017, noting that it was “mainly due to weather effects on agricultural production”.

However, it said the weakness would likely prove temporary.

“Growth is expected to strengthen, supported by accommodative monetary policy, a high terms of trade, government spending and population growth,” it said, adding that “labour market conditions are projected to tighten further”.

So it sees stronger growth and labour market conditions in the period ahead, although that’s unlikely to translate to a sharp pickup in inflationary pressures.

Breaking from tradition, the RBNZ offered no commentary on the current level of the New Zealand dollar in the statement.

Given the RBNZ’s views on the outlook for economic growth, the labour market and inflation, it provided no clues that it was readying for a near-term interest rate hike.

“Monetary policy will remain accommodative for a considerable period,” it said. “Numerous uncertainties remain and policy may need to adjust accordingly.”

In its prior economic forecasts, the RBNZ saw the cash rate moving higher gradually in the second half of 2019.

The New Zealand dollar and interest rate markets are largely unmoved following the release of the RBNZ statement.