Reserve Bank again holds OCR at 1.75%

Adrian Orr
Adrian Orr
The Reserve Bank yesterday kept the interest-driving official cash rate at its record 1.75% low, as expected, but pushed out the next likely rate change into 2021.

The OCR has been at 1.75% since November 2016.

Reserve Bank governor Adrian Orr said he expected to hold the OCR where it is through 2019 and 2020.

''We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment and maintaining low and stable inflation,'' Mr Orr said.

Westpac chief economist Dominick Stephens said the announcement was very much in line with expectations, but some details were less dovish than might have been expected.

''Overall, the Reserve Bank has stuck to its view that inflation pressures in New Zealand are slowly building,'' he said

The Reserve Bank's negative concerns were centred around the global economy and were couched as risks, Mr Stephens said.

''In contrast, the Reserve Bank remains upbeat on domestic conditions, with growth expected to be supported by low interest rates, government spending and investment, and growth in employment,'' he said.

ASB chief economist Nick Tuffley said the Reserve Bank OCR forecasts were pushed out six months, implying a move in the first half of 2021.

''As expected, global risks were seen to have intensified,'' Mr Tuffley said.

ASB picked the OCR would be on hold until February 2021.

Mr Orr said trading-partner growth was expected to moderate further through this year and global commodity prices had already softened, ''reducing the tailwind that New Zealand economic activity has benefited from''.

''The risk of a sharper downturn in trading-partner growth has also heightened over recent months,'' BusinessDesk reported.

Despite that, Mr Orr said he expected low interest rates and government spending would support a pick-up in New Zealand's GDP growth during 2019.

''Low interest rates, and continued employment growth, should support household spending and business investment. Government spending on infrastructure and housing also supports domestic demand,'' Mr Orr said

''As capacity pressures build, consumer price inflation is expected to rise to around the mid-point of our target range at 2%,'' he said.

simon.hartley@odt.co.nz

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