Reserve Bank governor Graeme Wheeler said macroeconomic indicators in advanced economies had been positive during the past two months. However, major challenges remain with ongoing surplus capacity in the global economy and extensive geo-political uncertainty.
In New Zealand, headline inflation had returned to the target band of between 1% and 3% as past falls in oil prices dropped out of the annual calculation.
Headline consumer price index inflation would be variable during the next 12 months due to one-off effects from recent food and import price movements, but was expected to return to the 2% midpoint target band in the medium-term. Longer-term inflation expectations remained "well-anchored" at about 2%, Mr Wheeler said.
"Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly."
ANZ chief economist Cameron Bagrie said the central bank did acknowledge some recent data surprises, specifically the soft fourth-quarter GDP growth and also the likely spike in first-quarter consumer price index inflation.
The Reserve Bank acknowledged the recent fall in the value of the New Zealand dollar, but again noted it was in part due to weaker dairy prices, he said.
"Importantly, it still believes further depreciation is needed."
Beyond that, the broad themes highlighted were unchanged. The Reserve Bank continued to acknowledge the better global backdrop but noted it contained challenges.
The bank’s views on the housing market were unchanged. Mr Wheeler acknowledged the recent moderation in house price growth, but still felt it was uncertain whether it could be sustained, Mr Bagrie said.
In many ways, the message from the Reserve Bank was "move along, nothing to see here".
The hits and misses relative to its earlier projections were not meaningful enough to alter its views. The bank was in no hurry to alter policy — the hurdle to sway it from that stance appeared high right now, he said.
The ANZ assumed the central bank still saw an equal chance of the next move being a hike or a cut. However, Mr Bagrie did not hold the same opinion.
"While we can envisage scenarios where the OCR is cut again — and they largely centre on global shocks — we see a much higher likelihood of a hike, given a tightening labour market, inflation approaching target and strong capacity pressures more generally."
Following Mr Wheeler releasing his statement, the New Zealand dollar rose to US70.61c from its 8.50am rate of US70.56c. By 9.35am it was back to US70.49c.In the same period, the dollar rose to A91.92c from A91.89 before falling to A91.80cThe 90-day bank bill rate was 1.98%.
At a glance
• OCR remains at 1.75%
• No chance of a rate rise before at least May next year
• Ninety-day bank bill rate remains below 2%
• Dollar rose, then fell, after the Reserve Bank announcement
