The Reserve Bank held the official cashrate at 1.75% today, and governor Adrian Orr said: “Given the weaker global economic outlook & reduced momentum in domestic spending, the more likely direction of our next OCR move is down.”
This is how Mr Orr saw the economy:
“Employment is near its maximum sustainable level. However, core consumer price inflation remains below our 2% target midpoint, necessitating continued supportive monetary policy.
“The global economic outlook has continued to weaken, in particular amongst some of our key trading partners including Australia, Europe & China. This weaker outlook has prompted central banks to ease their expected monetary policy stances, placing upward pressure on the $NZ.
“Domestic growth slowed in 2018, with softness in the housing market and weak business investment contributing.
“We expect ongoing low interest rates, and increased Government spending & investment, to support economic growth over 2019. Low interest rates & continued employment growth should support household spending & business investment. Government spending on infrastructure, housing & transfer payments also supports domestic demand.
“As capacity pressures build, consumer price inflation is expected to rise to around the midpoint of our target range at 2%.
“The balance of risks to this outlook has shifted to the downside. The risk of a more pronounced global downturn has increased and low business sentiment continues to weigh on domestic spending. On the upside, inflation could rise faster if firms pass on cost increases to prices to a greater extent.
“We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low & stable inflation.”
Attribution: Bank release.