RBNZ likely to leave OCR at 1.75 pct, retain cautiously upbeat stance at Spencer’s last announcement as Acting Governor: ANZ Research

The Reserve Bank of New Zealand (RBNZ) is expected to again leave the Overnight Cash Rate (OCR) at 1.75 percent, and retain a cautiously upbeat stance at Grant Spencer’s last announcement as Acting Governor, according to a recent report from ANZ Research.

Developments since the February Statement won’t change the RBNZ’s assessment much, with the RBNZ not expecting to tighten monetary policy until the second half of 2019. OCR decisions have taken a bit of a back seat recently, with fiscal policy and potential changes to the PTA and Reserve Bank governance at the fore.

The economy has weathered recent political uncertainty well, with business confidence off post-election lows and near-term activity looking sold. Overall, the economy is growing at about trend pace. The housing market is stable. REINZ house price index was up 3.7 percent y/y in February – a healthy, steady pace. The Auckland market is cool and the rest of the country is playing catch up.

Further, the terms of trade remain elevated, supporting national incomes. But at the same time, the NZD remains high, dampening activity and inflation. Headline inflation is set to remain low, but underlying inflation is expected to increase gradually from here.

"We don’t expect any major changes in the RBNZ’s views, at least until he gets his feet well under his desk. But over time we will be looking to understand how the RBNZ operates under his watch," the report commented.

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