The Reserve Bank of New Zealand (RBNZ) also maintained its forecast for the first interest rate hike to come in September 2019 when the OCR rate is seen rising to 1.9 percent from 1.8 percent. The second rate hike is seen coming in March 2020 when OCR rises to 2.0 percent.
In its latest monetary policy statement, the RBNZ forecast the OCR rate would then rise further to 2.1 percent by September 2020.
The forecast for inflation this year was lowered to reflect the waning impact of higher fuel and food prices, with the RBNZ saying headline inflation should rise gradually as capacity pressures rise, pushing inflation back to the midpoint of its target range.
After easing to 1.3 percent by December this year, New Zealand's inflation rate is seen remaining low in early 2018, hitting 0.7 percent by March next year, before slowly rising to 2.0 percent by March 2019.
New Zealand's inflation rate eased to a lower-than-expected 1.7 percent in the second quarter of this year from 2.2 percent in the first quarter, well within the central bank's target band of 1 -3 percent.
The Reserve Bank of New Zealand issued the following statement by its governor, Graeme Wheeler:
"The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 1.75 percent.
Global economic growth has become more broad-based in recent quarters. However, inflation and wage outcomes remain subdued across the advanced economies, and challenges remain with on-going surplus capacity. Bond yields are low, credit spreads have narrowed and equity prices are at record levels. Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward.
The trade-weighted exchange rate has increased since the May Statement, partly in response to a weaker US dollar. A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth.
GDP in the March quarter was lower than expected, adding to the softening in growth observed at the end of 2016. Growth is expected to improve going forward, supported by accommodative monetary policy, strong population growth, an elevated terms of trade, and the fiscal stimulus outlined in Budget 2017.
House price inflation continues to moderate due to loan-to-value ratio restrictions, affordability constraints, and a tightening in credit conditions. This moderation is expected to persist, although there remains a risk of resurgence in prices given continued strong population growth and resource constraints in the construction sector.
Annual CPI inflation eased in the June quarter, but remains within the target range. Headline inflation is likely to decline in coming quarters as the effects of higher fuel and food prices dissipate. The outlook for tradables inflation remains weak. Non-tradables inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term. Longer-term inflation expectations remain well anchored at around 2 percent.
Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly."
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