MNI: RBNZ Spencer: Dnside Infl Surprise Could Lead to OCR Cut

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By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of New Zealand could cut the official cash

rate if inflation continued to surprise on the downside but there was still

upside risks from the housing market which could made a rate reduction

difficult, Governor Grant Spencer said Thursday.

     Spencer was speaking at the media conference following the release of the

February official cash rate decision and quarterly Monetary Policy Statement,

with the RBNZ leaving the rate unchanged at 1.75%. Spencer is interim governor,

with this six-month term ending next month when Adrian Orr takes over.

     Spencer was asked if the last line of the OCR statement stating "numerous

uncertainties remain and policy may need to adjust accordingly" indicated there

was a two-way bet for the next rate move.

     He answered, "That's a valid observation because our approach and it is

still the case that the next interest rate move could be up or down. There are

upside risks but there are also risks to the downside."

     He noted that inflation has been surprising to the downside and "if that

continued, then it is possible we could see interest rate reductions."

     On the other hand, if things pan out in line with the RBNZ's forecast and

expectation, then the OCR would be lifted as suggested by the forecast track, he

said. "The risks are two-sided," he added.

     Spencer said the RBNZ is confident that inflation is headed towards the

mid-point of its target band. Hence while there may be case for a cut for

quicker rise in inflation, the RBNZ prefers to be patient and thinks this is a

sensible approach.

     In fact, Spencer said that one of the main things he learnt from his work

with monetary policy at RBNZ is that "patience is a virtue in monetary policy."

Central banks need to be very careful before making interest rate moves, he

said.

     The key risk with lowering the OCR is the housing market where despite

recent moderation, the RBNZ sees the risks to the upside.

     On the New Zealand dollar, Spencer said he is comfortable about the level

of the exchange exchange. It had risen since November but not much, he added.

--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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