New Zealand central bank keeps rates unchanged, flags economic uncertainties
[WELLINGTON] New Zealand's central bank held its official cash rate at a record low of 0.25 per cent on Wednesday, as expected, saying the current levels of monetary stimulus were needed to meet its consumer price inflation and employment remit.
The Reserve Bank of New Zealand (RBNZ) also retained its large scale asset purchase (LSAP) programme at NZ$100 billion (S$96.54 billion). The Funding for Lending Programme (FLP) operation was unchanged.
Economists in a Reuters poll had unanimously expected the RBNZ to hold rates.
"The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained at the 2 per cent per annum target midpoint, and that employment is at or above its maximum sustainable level," it said in the statement.
Meeting these requirements will necessitate considerable time and patience, it added.
The New Zealand dollar dropped 0.2 per cent after the announcement, settling at US$0.7359.
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RBNZ said in its Monetary Policy Statement that the recent resilience in the domestic economy implies that no significant additional stimulus is required at this time.
While the RBNZ sounded a cautious note about the outlook, analysts expect improving conditions to add to the case for reduced stimulus.
"The Reserve Bank of New Zealand sounded dovish when it left policy settings unchanged today, but we still expect the Bank to begin increasing rates next year," Ben Udy, Australia & New Zealand Economist at Capital Economics, said.
"While the Bank stressed its willingness to provide further stimulus and its ability to implement negative rates, the Bank's forecast now show less stimulus is likely to be needed."
The central bank cut interest rates by 75 basis points in March last year and said it would remain unchanged for 12 months, while also introducing quantitative easing to support an economy hit by border closure and coronavirus lockdowns.
But a quicker economic recovery and concerns about a red-hot property market buoyed by historically low interest rates have left markets speculating that the easing cycle has ended and that a rate hike may come sooner than expected.
Despite improved economic data, the RBNZ, which is one of the most dovish central banks, remained cautious saying the economic outlook ahead remains "highly uncertain".
"This ongoing uncertainty is expected to constrain business investment and household spending growth," it said, adding that inflation and employment would likely remain below its remit targets over the medium term in the absence of prolonged monetary stimulus.
RBNZ also revised its forecasts for growth, employment and inflation, all of which have returned better-than-expected results since the last policy meeting in November.
REUTERS
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