Reserve Bank governor Graeme Wheeler has dampened down any thoughts he may cut the official cash rate from 3.5%, despite the Australian official lending rate being likely to fall to 2% by May.
In a speech to the Canterbury Employers Chamber of Commerce yesterday, Mr Wheeler opted for a period of OCR stability as the most prudent option. He then set out a range of arguments against cutting the OCR.
Among them were:Headline inflation will fall to very low levels, mainly due to falling oil prices.
The central bank's medium-term forecasts of inflation were well within the inflation target band of 1% to 2%.
New Zealand was the only country among the advanced economies to have had a positive output gap in the past two years.
New Zealand's unemployment rate was low and falling -although that point was challenged by yesterday's labour market data.
Net inward migration and labour force participation are at record levels.
Business and consumer confidence remain strong.
There had already been easing of credit conditions with falls in fixed-rate mortgages, at a time when Auckland house prices are accelerating.
Westpac chief economist Dominick Stephens said Mr Wheeler achieved symmetry by outlining the scenarios under which the OCR would rise: The Reserve Bank would have to be confident the capacity utilisation and labour market pressures were generating, or about to generate, a substantial increase in inflation.
Mr Wheeler confirmed he was worried about the Auckland housing market in a subsequent press conference.
Labour finance spokesman Grant Robertson said the Government might have ignored the pleas of first-home buyers to take action on the housing crisis but it would struggle to ignore Mr Wheeler, who said much more needed to be done to get homes built.
''This Government has failed to deal with the housing crisis and effectively outsourced it to the Reserve Bank.''
The Government should not leave the housing crisis to the Reserve Bank. Prime Minister John Key needed to build more houses in Auckland instead of fiddling with the Resource Management Act, Mr Robertson said.
Mr Stephens said the speech was right in line with his preview of the January OCR review.
''We expected the Reserve Bank to remove its hiking basis but to argue vigorously against OCR cuts. The speech was consistent with our interpretation of the actual OCR review which was the Reserve Bank is now firmly on hold.''
Westpac still thought the most likely course was for the OCR to remain at 3.5% until June 2016 before rising slowly.
