A previous soft easing bias was removed but the message was the OCR was not going anywhere in a hurry. That was "entirely appropriate".
"In many ways, the statement was very two-handed. Domestic economic strength, a higher inflation starting point and better global prospects are acknowledged. But that is balanced against New Zealand dollar strength, ongoing global risks, caution over the outlook for dairy, and a lower inflation forecast."
While the lack of a confirmed explicit tightening bias would disappoint hawks, and should be bullish for short-end interest rates, Mr Bagrie doubted the market would fully embrace the Reserve Bank’s neutral tone. Any dips were expected to be shallow.
Mr Wheeler announced earlier he would not seek a second term as governor and Finance Minister Steven Joyce delayed any appointment of a new governor until after the election.
Opposition parties are known to want changes in the central bank’s Policy Targets Agreement which now has Mr Wheeler tasked with keeping inflation to the midpoint of between 1% and 3%. Inflation finally reached the target range in December for the first time since 2014.
New Zealand First leader Winston Peters has been an outspoken critic of the Reserve Bank and current polling suggests he will play a part in the formation of the next government.After the OCR announcement, Mr Peters said the Reserve Bank was brushing aside multiple risks and uncertainties in the global economy.
In the final sentence, the Reserve Bank said: "Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.
"The reality is, internationally, risks abound and deep trouble could emerge suddenly. The bank is simply downplaying a sea of risks.
"The Reserve Bank has missed another opportunity to educate and inform the public of the precarious state of the global economy due to the prolonged and unprecedented era of low interest rates, deeply indebted nations and slow growth," Mr Peters said.
The international outlook called for a more balanced and common-sense approach to economic policy, including a sensible immigration policy.
The Government’s phony "feel-good" approach to economic policy was courting disaster for New Zealand, he said.
Mr Bagrie said throughout the Reserve Bank’s statement, it seemed at pains to emphasise both positive and negative risks. The global outlook had improved but major challenges remained. The Reserve Bank argued further easing would risk generating unnecessary volatility but also — significantly, given market pricing — premature tightening could forestall the anticipated gradual increase in inflation.
Mr Bagrie said the only surprise was the "demure track" for headline inflation which was weaker than expected and "clearly on the back" of the strength of the dollar.
● The dollar dropped to US72.57c from US73.02c immediately before the Reserve Bank’s statement and the trade-weighted index fell to 79.03 from 79.49. The two-year swap rate fell 0.05% to 2.3%.
AT A GLANCE
• OCR held at 1.75%, next rise not expected until mid-2017.
• Lower inflation outlook than expected because of the strong dollar.
• NZ First leader Winston Peters criticises the bank’s stance.
• The dollar fell after the Reserve Bank statement.
