MNI INSIGHT: Restructuring RBNZ Set To Stand Pat In Feb

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand will likely leave rates

unchanged in the first part of the year as it beds down its restructured

committee-based decision-making process, MNI understands, with inflation moving

closer to the midpoint of its target range despite a cooling economy.

     The RBNZ has not commented on monetary policy since November, when it was

equivocal about the direction of its next adjustment to the Official Cash Rate,

but it is scheduled to announce its interest rate decision on Feb. 13.

     Financial markets are pricing a 30% possibility of a rate cut this year,

based on evidence of a cooling economy which saw growth slow from a year-on-year

2.8% in the second quarter to 2.6% in the third.

     But the Bank has received a helping hand from inflation, which rose 0.1

percentage point in the fourth quarter of 2018, to an annual 1.9%. While the

RBNZ had forecast a 0.2 percentage point rise, the tick higher still took it

closer to the midpoint of its target range between 1% and 3%.

     This should help ease any pressure on the RBNZ to make any change to the

Cash Rate -- at 1.75% since a 25 basis point cut in November 2016 -- before it

has had time to introduce its new structure and a new committee-based

decision-making process. The NZ Parliament is expected to enact legislation to

reform the RBNZ in April, creating a new committee with external members, which

should start operating from May.

     --EXPANSIONARY POLICY

     In its November statement, the bank said it would keep rates "at an

expansionary level for a considerable period to contribute to maximising

sustainable employment, and maintaining low and stable inflation."

     While it removed a phrase in its previous statement which had pointed to

the possibility of its next move being either up or down, Governor Adrian Orr

also stressed that the Bank was not taking a rate cut off the table.

     Last week, Orr appointed the last two members of his seven-strong

leadership team, which includes himself and has been cut in size from 13.

     Not all members of the reconfigured team sit on the rejigged Monetary

Policy Committee. The new MPC format will include four bank insiders, three

external members and a non-voting representative from the finance ministry.

     The bank is also losing its chief economist, John McDermott, who will

depart for the private sector after the February Monetary Policy Statement.

Christian Hawkesby, joining from Harbour Asset Management, will take up the

newly-established role of assistant governor and general manager of economics,

financial markets and banking from March 18.

     Under the new structure, if the committee is unable to reach a consensus

decision, non-attributed results from voting will be published. Minutes of

decisions will also be released to explain announcements after they are made.

     Unlike the neighbouring Reserve Bank of Australia, the RBNZ also has

prudential responsibilities for the financial system.

     In November, the Bank wound back mortgage restrictions, allowing banks to

issue more loans to borrowers with small deposits for home purchases. From Jan.

1, the percentage of mortgage loans banks can extend to owner occupiers with

deposits of less than 20% of a property's value has been increased from 15% to

20%.

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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