RBNZ leaves OCR unchanged at 1.75 pct, maintains neutral bias

The Reserve Bank of New Zealand (RBNZ) left the official cash rate at a record-low of 1.75 percent at this year’s first monetary policy meeting held late Wednesday and signalled that it is likely to remain on hold for some time. However, the tone of the accompanying policy statement was very neutral.

RBNZ Governor Wheeler described today’s Statement as a shift from an easing bias in November to a neutral one. Though looking back at the November Statement, it’s a shift from what was only a very modest easing bias to begin with. Back in November the RBNZ signalled an extended period of low rates and had a very balanced outlook for economic conditions.

However, their projection for the OCR lingered at 1.7 percent though to the end of 2019. As the RBNZ’s forecasts for the OCR are rounded to one decimal place, we read this as implying about a 20 percent chance of a rate cut, but not indicating any commitment to doing so.

In light of these developments, the RBNZ projections for the OCR have been nudged up just slightly. The OCR is now projected to remain at 1.8 percent through to June-2019, which more-or-less points to the cash rate remaining at its current level for an extended period. Consistent with this, Governor Wheeler noted that the chances of a rate cut or a rate hike are equally balanced.

"Our view on the OCR is broadly in line with the RBNZ’s Statement: the next move in rates is likely to be up, but it is too far into the future to be precise about the timing. All the signs point to inflation lingering the lower half of the target range for some time. On that basis, the case for reversing the recent OCR cuts any time soon looks weak," Westpac said in its latest research publication.