Reserve Bank rate expectations met

Graeme Wheeler.
Graeme Wheeler.
The Reserve Bank has, as expected, kept the interest-driving official cash rate (OCR) at 1.75%, with estimates of a hike now varying between early through to late 2019.

ASB chief economist Nick Tuffley said he believed the Reserve Bank would lift the OCR earlier than its forecasts implied, in early 2019, while Westpac chief economist Dominick Stephens thought it would be late-2019, with subsequent gentle hikes.

Mr Tuffley said there was "mild surprise" at the lack of any shift in the Reserve Bank’s outlook on the OCR.ASB economists believed the Reserve Bank was underestimating the stimulatory effect of the recovering dairy sector and inflation boost from migration inflows,  he said.

With headline inflation set to ease during the next year, the Reserve Bank would "remain cautious" for some time yet, Mr Tuffley said.

The Reserve Bank kept its forecast for the OCR unchanged at 1.8% until September 2019 when it creeps up to 1.9%, with a quarter-point increase not fully predicted until March 2020, BusinessDesk reported.

The latest forecast includes the September 2020 quarter with the OCR rising to 2.1%.

Reserve Bank governor Graeme Wheeler said yesterday monetary policy would "remain accommodative for a considerable period".

"Numerous uncertainties remain and policy may need to adjust accordingly," Mr Wheeler said.

Mr Stephens said yesterday’s overall guidance was unchanged from that issued by the Reserve Bank in May and then July.

"There was very little change in the Reserve Bank’s growth or inflation forecasts for 2018, and absolutely no change in the forward guidance for monetary policy," Mr Stephens said.

The period of low inflation has been a global phenomenon and for the likes of New Zealand has been compounded by major central banks’ ultra-loose monetary policy settings making the relatively high domestic interest rates stoke demand for the currency, BusinessDesk reported.

The Reserve Bank scaled back its forecast for inflation for the next three quarters by about half a percentage point, predicting annual consumer price index inflation of 1.6% in the September quarter and 1.3% in December and falling to 0.7% in March next year, back below the Reserve Bank’s 1%-3% target band. 

Inflation is then seen rising in subsequent quarters, reaching the 2% mid-point target in March 2019.

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