The Reserve Bank is adopting a more open communications
policy, including more on-the-record speeches and a wider range
of bank speakers being used to broaden understanding of the
bank's policy choices and tools.
A robust decision-making process and clear communication were
essential for effective monetary policy, Reserve Bank
governor Graeme Wheeler said.
The bank tried to provide an accurate assessment of the
implications of the challenges provided by the ''massive
adjustments'' taking place in the government, corporate and
financial-sector balance sheets, as well as those of
households, he said.
A more open communications policy will be helpful this week
as the Reserve Bank releases its monetary policy statement,
which may need to address the effects of the drought on the
New Zealand economy.
The central bank is expected on Thursday to leave its
official cash rate at 2.5%, an increasing number of
economists predicting it will stay at the record low until
March next year.
Westpac is taking a different view, the bank harbouring
concerns the Reserve Bank's fears around housing are about to
Westpac chief economist Dominick Stephens said the Reserve
Bank's last two commentaries on monetary policy had given a
The global and local economies were improving. The Canterbury
rebuilding was set to add an extra boost to the New Zealand
growth, although that would be partially offset by the
dampening effects of Government austerity and the high
exchange rate. Overall, the Reserve Bank expected inflation
to rise from the current low level of below 1% to the 2%
The general themes of the monetary policy statement were
likely to be unchanged from the two previous missives,
although one or two nuances might be highlighted, Mr Stephens
The bank would probably mention that local economic activity
had been stronger than anticipated in recent months. That
would be countered by observations that inflation had been
lower than expected and the trade-weighted exchange rate had
risen 4% since December.
The recently declared drought would probably be described as
an important risk rather than being included in the bank's
central economic projections at this stage, Mr Stephens said.
''Our view is that the Reserve Bank's fears around housing
will be realised. Given the current state of the market,
house prices could easily rise 9% this year on a nationwide
basis. That would be sufficient to provoke earlier OCR hikes.
We expect the first hike to come in December 2013 and the
follow-up pace of hikes over 2014 to be steeper than markets
currently anticipate,'' Mr Stephens said.
ASB chief economist Nick Tuffley said, while the overall
economic outlook had not changed significantly, the tension
within the forecasts had increased.
The trade-off between subdued economic growth and weak
inflation pressure and the increase in housing market
pressures had become more extreme.
The elevated value of the dollar was creating significant
problems for the export outlook and Mr Wheeler had commented
a stronger dollar implied a lower OCR for longer, Mr Tuffley
''Low interest rates will continue to stimulate housing
demand. In response, there is a growing chance the Reserve
Bank uses macro-prudential tools later this year.''
Research suggested the impacts of those tools were very
modest and the OCR remained the best tool if the housing
market risks to the economic outlook became too great, he