RBNZ likely to leave OCR at 1.75 pct next week, remain cautious until inflation shows consistent improvement: ANZ Research

The Reserve Bank of New Zealand (RBNZ) is expected to leave the Overnight Cash Rate (OCR) at 1.75  percent at its monetary policy meeting scheduled for next week, remaining cautious until inflation shows consistent signs, according to the latest report from ANZ Research.

Businesses are downbeat and this is being reflected in investment and employment intentions. Today’s GDP data confirm that economic momentum is gradually moderating. The housing market is stable, but household sentiment and spending growth have been waning. Inflation pressures are subdued. While the global picture remains positive, risks have increased (particularly around escalating trade tensions).

Also, there are reasons to believe some degree of pick-up in inflation is around the corner. Wage inflation is set to increase, partly as a result of policy changes, which will contribute to rising cost pressures faced by firms.

At the same time, disinflationary forces that have been holding down inflation (perhaps related to technology and globalisation) are expected to dissipate gradually, global inflation is expected to increase and depreciation in the exchange rate is expected to provide a further boost.

"We expect that the RBNZ will eventually tighten monetary policy in the second half of 2019, once it is confident that inflation is alive and well. This timeline is consistent with the RBNZ’s own projections," the report added.