Reserve Bank expects to hold cashrate long-term, though numerous factors could change that

The Reserve Bank kept the official cashrate at 1.75% yesterday, and governor Adrian Orr said: “We expect to keep the rate at this level through 2019 & into 2020.”

This is his summary:

“There are both upside & downside risks to our growth & inflation projections. As always, the timing & direction of any future official cashrate move remains data dependent.

“The pick-up in gdp growth in the June quarter was partly due to temporary factors, and business surveys continue to suggest growth will be soft in the near term. Employment is around its maximum sustainable level. However, core consumer price inflation remains below our 2% target midpoint, necessitating continued supportive monetary policy.

“GDP growth is expected to pick up over 2019. Monetary stimulus & population growth underpin household spending & business investment. Government spending on infrastructure & housing also supports domestic demand. The level of the $NZ exchange rate will support export earnings.

“As capacity pressures build, core consumer price inflation is expected to rise to around the midpoint of our target range at 2%.

“Downside risks to the growth outlook remain. Weak business sentiment could weigh on growth for longer. Trade tensions remain in some major economies, raising the risk that trade barriers increase and undermine global growth.

“Upside risks to the inflation outlook also exist. Higher fuel prices are boosting near-term headline inflation. We will look through this volatility as appropriate. Our projection assumes firms have limited pass-through of higher costs into generalised consumer prices, and that longer-term inflation expectations remain anchored at our target.

“We will keep the official cashrate at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low & stable inflation.”

Links:
Monetary policy statement
Press conference live-stream

Attribution: Bank release.

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