MNI POLICY: RBNZ Leaves Rates On Hold, Policy Room If Needed

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand has left its official cash

rate (OCR) unchanged at 1%, but said there "remains scope" for more fiscal and

monetary stimulus.

     The RBNZ said that developments had not changed significantly since the

August meeting at which it announced a big cut of 50 basis points down to the

new record low of 1%.

     This meant that while a further rate cut was not justified at this month's

meeting, the Monetary Policy Committee maintained its dovish monetary policy

outlook.

     The Bank has previously said it is prepared to cut rates further, and has

modelled a "package" of unconventional measures such as negative rates and

quantitative easing.

     Wednesday's RBNZ statement noted that since the August cuts there had been

a decline in retail lending interest rates along with a depreciation in the

value of the currency, and said the Bank "anticipated a positive impulse" to

economic activity over the coming year.

     "Lower interest rates and increased Government spending are expected to

support a pick-up in domestic demand over the coming year," the statement said.

     "Keeping the OCR at low levels is needed to ensure inflation increases to

the mid-point of the target range and employment remains around its maximum

sustainable level."

     NZ's unemployment rate is at 3.9%, down from 4.2% earlier this year, while

inflation is at 1.7% against the 2% target mid-point.

     The NZ economy grew by 0.5% in the second quarter, delivering annualised

growth of 2.1%.

     While this was better than the 0.4% expected by the market the result was

nevertheless the weakest since late 2013.

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

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

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