Reserve Bank Governor Graeme Wheeler has announced there will
be no change to the Official Cash Rate, which sits at a
record low 2.5pc.
The financial markets saw no chance the Reserve Bank would
raise the official cash rate today so their focus will be on
how the accompanying monetary policy statement describes the
balance of risks going forward.
The New Zealand dollar dropped on the news.
"The overvalued New Zealand dollar is undermining
profitability in export and import competing industries, and
worsening drought conditions are creating difficulty in much
of the country," Wheeler said. "At this point we expect to
keep the OCR unchanged through the end of the year.
The central bank expects the 90-day bank bill, often seen as
a proxy for the OCR, to start increasing in June next year,
before accelerating in 2015 and rising to 4 per cent the
following year. It had previously projected the rate staying
on hold until December this year, rising to 3.3 per cent in
Traders see 22 basis points of cuts over the next 12 months,
based on the Overnight Interest Swap curve. The New Zealand
dollar fell to 82.13 US cents after the statement from 82.60
cents immediately before. It fell to 79.66 Australian cents
from 80.13 cents.
The economy grew faster than expected through the tail-end of
last year, underpinned by the Canterbury rebuild, and that
stronger domestic demand is seen as creating medium-term
inflationary pressures, even as consumer prices remain
subdued in the foreseeable future, the bank said in the
monetary policy statement.
"Monetary policy settings must balance this low near-term
inflation outlook and concerns about the exchange rate and
weak labour market, against increasing signs that output will
accelerate and inflationary pressures will pick up," the