The Reserve Bank left the official cashrate unchanged today at 1.75%.
The Reserve Bank of Australia held its cashrate at 1.5% yesterday and the US Federal Reserve decided on 1 February to hold its target range for the federal funds rate at 1.25-1.5%.
NZ Reserve Bank acting governor Grant Spencer said there were numerous uncertainties, and monetary policy would remain accommodative for a considerable period. This is how he saw the economic landscape:
“Global economic growth continues to improve. While global inflation remains subdued, there are some signs of emerging pressures. Commodity prices have increased, although agricultural prices are relatively soft. International bond yields have increased since November but remain relatively low. Equity markets have been strong, although volatility has increased recently. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.
“The exchange rate has firmed since the November statement, due in large part to a weak $US. We assume the trade-weighted exchange rate will ease over the projection period.
“GDP growth eased over the second half of 2017 but is expected to strengthen, driven by accommodative monetary policy, a high terms of trade, government spending & population growth. Labour market conditions continue to tighten. Compared to the November statement, the growth profile is weaker in the near term but stronger in the medium term.
“The bank has revised its November estimates of the impact of government policies on economic activity based on Treasury’s half-year economic & fiscal update. The net impact of these policies has been revised down in the near term. The Kiwibuild programme contributes to residential investment growth from 2019.
“House price inflation has increased somewhat over the past few months but housing credit growth continues to moderate.
“Annual CPI inflation in December was lower than expected at 1.6%, due to weakness in manufactured goods prices. While oil & food prices have recently increased, traded goods inflation is projected to remain subdued through the forecast period. Non-tradable inflation is moderate but expected to increase in line with increasing capacity pressures. “Overall, CPI inflation is forecast to trend upwards towards the midpoint of the target range. Longer-term inflation expectations are well anchored at 2%.
“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”
Attribution: Bank release.