Published: Fri, August 11, 2017
Worldwide | By Gretchen Simon

New Zealand holds interest rate at record low

New Zealand holds interest rate at record low

"It's hard, I think, to make the argument that that's an indication of monetary policy being run too tightly", Wheeler said at the Reserve Bank's Thursday morning press conference.

The RBNZ's surprisingly cautious tone in recent months has been justified by the latest data. Some economists and politicians have challenged Wheeler's performance in the role, given he took a hawkish line early in his term and had to more than reverse a series of rate hikes when the inflation he forecast did not arrive. RBNZ feels that a lower exchange rate needed to increase tradable inflation and deliver balanced growth. The kiwi has climbed more than 7 percent against the greenback since the RBNZ's last set of forecasts on May 11.

After posting some of the fastest growth among advanced economies in recent years, there are tentative signs the economy is losing momentum: it grew less than expected in the first quarter, inflation slowed more than forecast in the second quarter, and employment unexpectedly contracted. The front fell off many commodity markets.

All 11 economists surveyed by Bloomberg expected today's decision, and most forecast the benchmark rate will remain at 1.75 percent for another year.

ASB chief economist Nick Tuffley said the OCR outlook was "not as "dovish" as expected".

Consumer Price inflation averaged 0.9 percent over his five year term and rose over that 2.0 percent midpoint for just one of the 18 quarters he was in charge. But that was due to temporary influences such as food and fuel prices.

The Reserve Bank has left the official cash rate unchanged at 1.75 per cent.

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But Wheeler, who leaves the job next month, said headline inflation was likely to decline and the outlook for tradables inflation was weak.

Labour productivity shrank 0.1 percent in the 2017 March year after contracting 0.2 percent in 2016, although the central bank predicts it will hit 0.9 percent by 2020, the end of its forecast horizon, which would be the highest level since 2011.

According to RBNZ policy makers, global economic growth increased and became more broad-based but wage growth subdued due to surplus capacity.

New Zealand's housing market is also cooling, led by a drop in Auckland prices, which may reduce pressure on inflation and keep interest rates lower for longer.

Reserve Bank governor Graeme Wheeler wants a greater debate on how to boost New Zealand's soggy productivity levels as a means of boosting the nation's living standards.

Reserve Bank governor Graeme Wheeler initially tried at his last media appearance to bat away questions about whether he achieved his agreed aim of keeping inflation around two percent within a one to three percent band, saying he planned to outline his defence of his term's achievements in a speech before it ends on September 27.

House price inflation continued to moderate due to loan-to-value ratio restrictions, affordability constraints, and a tightening in credit conditions.

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