The Reserve Bank of New Zealand’s monetary policy board on Thursday elected to hold its Official Cash Rate steady at 3.50 percent – in line with expectations.
It was the sixth straight month with no change for the RBNZ, which had hiked the OCR by 25 basis points in each of previous four meetings prior to September.
Before that, there were 23 straight meetings with no change. The OCR had been at a record low 2.50 percent since March 10, 2011 as the country dealt with the global economic slowdown.
It wasn’t until last March that the central bank felt confident enough in a recovery that it lifted the OCR – although no additional action is likely in the near term.
“The New Zealand economy continues to grow at an annual rate of around 3 percent, supported by low interest rates, high net immigration and construction activity, and the fall in fuel prices. House price inflation is elevated in Auckland. However, lower dairy incomes, lingering effects of drought, fiscal consolidation, and the high exchange rate are weighing on the outlook for growth,” the bank said in a statement accompanying the decision.
One of the biggest factors in the current global landscape, the bank said, was the dramatic decline in the price of oil – which has led to increased volatility.
But the cheaper oil has an added benefit for the average consumer in that it will increase buying power.
“Considerable uncertainties exist in Europe, China and Australia and on the timing of US monetary policy adjustment, although global growth should be boosted by the decline in world oil prices. Crude oil prices are almost 50 percent below their July 2014 level, with increasing supply mostly contributing to this fall,” the bank said.
The bank noted that economic growth seems steady at around 3 percent, thanks to by rising construction activity and household incomes – while the housing market also shows signs of improvement.
The board also pointed to the easing NZ dollar, adding that further depreciation is to be expected.
“We are watching closely the ongoing impact on tradables inflation from global forces and the high New Zealand dollar. On a trade-weighted basis, the New Zealand dollar continues to be unjustifiably high and unsustainable in terms of New Zealand’s long-term economic fundamentals,” the bank said.
The RBNZ called it prudent to take more time and further observe the effects of its moves to date.
The bank pointed to several factors for taking its time in taking any further actions, including weak global inflation, falls in international oil prices and the high exchange rate.
“The timing of future adjustments in the OCR will depend on how inflationary pressures evolve in both the non-traded and traded sectors. It would be appropriate to lower the OCR if demand weakens, and wage and price-setting outcomes settle at levels lower than is consistent with the inflation target,” the bank said.
The material has been provided by InstaForex Company – www.instaforex.com