New Zealand holds interest rate at record low

Reserve Bank governor Graeme Wheeler's five-year term ends next month

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

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. "Numerous uncertainties remain and policy may need to adjust accordingly", Mr Wheeler said in a statement.

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The bank made no changes to its official cash rate forecasts, which project rates will rise in early 2020. The latest forecast includes the September 2020 quarter with the OCR rising to 2.1 percent.

All 21 economists in a Reuters poll had forecast the central bank would stay put on Thursday, but some had expected it to strike a more dovish tone by acknowledging the recent run of softer data or adjusting its inflation and interest rate forecasts.


The central bank scaled back its forecast for inflation for the next three quarters by about half a percentage point, predicting annual consumer price index inflation of 1.6 percent in the September quarter and 1.3 percent in December and falling to 0.7 percent in March next year, back below the RBNZ's 1-to-3 percent target band.

The central bank said a lower New Zealand dollar was "needed" to increase import-driven inflation and help deliver more balanced growth, a slight change from June when it said a lower currency "would help" rebalance the growth outlook.

Gov. Wheeler also said that headline inflation is likely to decline in coming quarters as the effects of higher fuel and food prices dissipate. "The outlook for tradables inflation remains weak".

On the macroeconomic developments, RBNZ acknowledged that recent GDP growth came in weaker than expected, while housing prices moderated and inflation softened. "We would like to see a lower exchange rate", he said, before reminding his listeners around the world that intervention in the foreign exchange market is "always open" to the RBNZ.

It reiterated that growth in the first quarter was lower than expected, nodding to the recent softening in an economy which has recently enjoyed some of the fastest growth among advanced economies.

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