In his first statement as governor of the Reserve Bank of New Zealand (RBNZ), Adrian Orr added the "direction of our next move is equally balanced, up or down. Only time and events will tell."
The policy decision was widely expected and the guidance echoed that of his predecessor, Grant Spencer, who handed the reins of the RBNZ to Orr on March 27.
In his last statement as acting governor, Spencer on March 22 said the RBNZ would keep an accommodative policy for a considerable period but its policy may need to adjust to the numerous uncertainties it faces.
The RBNZ has kept its rate steady since a 25-basis point cut in November 2016 when it also adopted a neutral policy stance.
While the central bank's forecast for inflation, growth and OCR was little changed from its previous policy statement in February, Orr now has a dual mandate of employment along with inflation, similar to the United States, Australia and Norway.
In March the New Zealand government amended the Policy Targets Agreement (PTA), requiring monetary policy to be conducted so it supports maximum levels of sustainable employment along with the requirement that inflation should be between 1 and 3 percent, with a focus on 2 percent.
In addition, the RBNZ's monetary policy decisions will from 2019 be decided by a Monetary Policy Committee (MPC) of 5-7 members, taking away the current governor's sole authority for policy decisions.
A majority of the new MPC - four - is planned to come from RBNZ staff while three will be external members, and the governor will be the chair. The Treasury will have a non-voting seat as observer to provide information about fiscal policy.
In its policy statement, the RBNZ pushed back the expected date for a rate hike to September 2019 from June 2019 when the rate is seen rising to 1.9 percent.
But in 2020 the RBNZ expects the key rate to rise rapidly, hitting 2.0 percent by March 2020, then 2.1 percent in June, 2.2 percent in September and 2.3 percent in December. By June 2021 the rate is seen at 2.4 percent.
The delay in the first rate hike since July 2014 mirrors a slightly lower inflation forecast, with inflation first seen hitting 2.0 percent in December 2020 as compared with September 2020.
There were only minor changes in the central bank's growth forecast, with 2018 growth seen averaging 2.8 percent, down from February's forecast of 2.9 percent, and 2019's growth seen averaging 3.1 percent, down from 3.3 percent.
In the first quarter of this year New Zealand's inflation rate eased to 1.1 percent from 1.6 percent while Gross Domestic Product grew by an annual 2.9 percent in the fourth quarter of last year, down from 3.0 percent.
The Reserve Bank of New Zealand released the following statement by its governor, Adrian Orr:
"Tena koutou, katoa, welcome all.
The Official Cash Rate (OCR) will remain at 1.75 percent for some time to come. The direction of our next move is equally balanced, up or down. Only time and events will tell.
Economic growth and employment in New Zealand remain robust, near their sustainable levels. However, consumer price inflation remains below the 2 percent mid-point of our target due, in part, to recent low food and import price inflation, and subdued wage pressures.
The recent growth in demand has been delivered by an unprecedented increase in employment. The number of willing workers continues to rise, especially with more female and older workers choosing to participate. Likewise net immigration has added to the supply of labour, and the demand for goods, services, and accommodation.
Ahead, global economic growth is forecast to continue supporting demand for New Zealand’s products and services. Global inflation pressures are expected to rise but remain contained.
At home, ongoing spending and investment, by both households and government, is expected to support economic growth and employment demand. Business investment should also increase due to emerging capacity constraints.
The emerging capacity constraints are projected to see New Zealand’s consumer price inflation gradually rise to our 2 percent annual target.
To best ensure this outcome, we expect to keep the OCR at this expansionary level for a considerable period of time. This is the best contribution we can make, at this moment, to maximising sustainable employment and maintaining low and stable inflation.
Our economic projections, assumptions, and key risks and uncertainties, are elaborated on fully in our Monetary Policy Statement.
Meitaki, thanks"
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