But the Reserve Bank of New Zealand (RBNZ), which has kept its rate steady since cutting it in November 2016, also repeated that "the direction of our next OCR move could be up or down."
In his third statement since taking over as RBNZ governor in March, Adrian Orr's reference to employment and inflation reflects the central bank's new mandate that added employment to its previous mandate that only focused on inflation.
While most central banks purely focus on inflation, New Zealand this year joined the central banks of the United States, Australia and Norway in having twin mandates.
"We will keep the OCR at an expansionary level for a considerable time to contribute to maximizing sustainable employment, and maintaining low and stable inflation," Orr said.
While the RBNZ has often said it would keep monetary policy expansionary for a considerable time for many months, today it pushed back its expected date for the OCR to rise to 1.9 percent from 1.8 percent by 12 months to September 2020 from September 2019 that was projected in May.
In an update to its monetary policy statement, RBNZ sees OCR rising to 2.0 percent in December 2020, 2.1 percent by March 2021, 2.2 percent by June 2021 and 2.3 percent by September 2021.
While RBNZ lowered its growth forecast for this year slightly, Orr said there were now "welcome early signs of core inflation rising," with inflation increasing towards the central bank's 2 percent midpoint target as the economy's output tops capacity.
"This path may be bumpy however, with one-off price changes from global oil prices, a lower exchange rate, and and announces petrol excise tax rises expected," Orr said, adding the central bank would look through this volatility and only respond to persistent movements in inflation.
RNBZ expects inflation to hit its 2 percent target in March 2021 as compared with December 2020 in May.
In the second quarter of this year, New Zealand's inflation rate averaged 1.5 percent, up from 1.1 percent in the previous quarter.
The Reserve Bank of New Zealand issued the following statement by its governor, Adrian Orr:
"Tena koutou katoa, welcome all.
The Official Cash Rate (OCR) remains at 1.75 percent. We expect to keep the OCR at this level through 2019 and into 2020, longer than we projected in our May Statement. The direction of our next OCR move could be up or down.
While recent economic growth has moderated, we expect it to pick up pace over the rest of this year and be maintained through 2019.
Robust global growth and a lower New Zealand dollar exchange rate will support export earnings. At home, capacity and labour constraints promote business investment, supported by low interest rates. Government spending and investment is also set to rise, while residential construction and household spending remain solid.
The labour market has tightened over the past year and employment is roughly around its maximum sustainable level. We expect the unemployment rate to decline modestly from its current level.
There are welcome early signs of core inflation rising. Inflation will increase towards 2 percent over the projection period as capacity pressures bite. This path may be bumpy however, with one-off price changes from global oil prices, a lower exchange rate, and announced petrol excise tax rises expected. We will look through this volatility as appropriate, and only respond to any persistent movements in inflation.
Risks remain to our central forecast. The recent moderation in growth could last longer. Low business confidence can affect employment and investment decisions. Conversely, there is a chance that inflation could increase faster if cost pressures can pass through into higher prices and impact inflation expectations.
We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation."
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