RBNZ leaves official cash rate unchanged
The Reserve Bank of New Zealand yesterday again left the official cash rate (OCR) unchanged at 2.5 per cent.
Reserve Bank Governor Alan Bollard cited deteriorating global economic conditions and an uncertain outlook as major factors behind the decision.
“Since the time of the December Statement, financial market sentiment has improved slightly, with increased liquidity in European financial markets,” he said. “However, the global economy remains fragile and risks to the outlook remain.”
The Governor also touched on concerns regarding the appreciating Kiwi dollar and the rising cost of offshore bank funding.
“World prices for New Zealand’s export commodities have remained elevated but the recent appreciation of the New Zealand dollar is reducing exporters’ returns. The European debt crisis has also increased the cost of international funding, which will likely pressure funding costs for New Zealand banks over the coming year.
Boosted by the reconstruction task and economic recovery in the earthquake-ravaged Canterbury region, Bollard said the RBNZ expected to see “modest growth” in the domestic economy.
He also added that “inflation pressures have remained well contained” with inflation now sitting below 2 per cent.
“Given ongoing uncertainty around global conditions and the moderate pace of domestic demand, it remains prudent to keep the OCR on hold at 2.5 per cent,” said Bollard.
According to Dominick Stephens, Westpac New Zealand’s chief economist, the central bank has implicitly pushed out the expected timing of rate hikes beyond the June start date that was projected in the December Monetary Policy Statement.
However, exactly when the rate hikes can be expected might not become clear until later in the year when a clearer picture is formed on domestic reconstruction and Europe.
“As expected, the Reserve Bank signalled a softening of its near-term policy stance without getting too specific in today's short statement,” said Westpac in a note to clients.
“The key change is the small but purposeful omission from the final sentence: while the December media release noted that it remained prudent ‘for now’ to keep the OCR on hold, those two words were removed this time. That eliminated the sense of pending hikes that was present in the December MPS.”
- Categories
- New Zealand
- Tags:
- RBNZ, official cash rate, Alan Bollard
- Author:
- Michael Davis, mdavis@financialpublications.com.au
- Article Posted:
- January 27, 2012
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