RBNZ expects outlook to be shaped by considerable uncertainty, to stay pat until mid-2018

The Reserve Bank of New Zealand (RBNZ) at policy meeting on Thursday, left the Official Cash Rate unchanged at 1.75 percent and reiterated that interest rates will remain low for a considerable time. The policy statement that followed was largely unchanged from the February Monetary Policy Statement.

The RBNZ did acknowledge some recent data surprises, specifically the soft Q4 GDP growth and also the likely spike in Q1 CPI. However, the central bank remained cautious about the global environment. In particular, the RBNZ continued to highlight excess capacity in the global economy and added that core inflation (excluding oil price movements) remains low and stable.

The RBNZ said that it was “encouraged” by the fall in the New Zealand dollar since February, but argued that this will make a meaningful difference on the inflation front. It downplayed the inflationary effects of the lower exchange rate and noted that headline inflation was likely to be thrown around this year by temporary movements in food and import prices, but will remain anchored around the 2 percent target midpoint.

"The RBNZ can afford to be patient right now, with banks effectively doing its work for it, as seen in lifting retail interest rates. We continue to pencil in the first OCR hike in May 2018," said