MNI RBNZ STATE OF PLAY: Minor Tweaks Hint At Growth Risk

--Moderates Language on Exchange Rate

--No Longer Characterizes Population Growth as "Strong"

By Sophia Rodrigues

     SYDNEY (MNI) - The Reserve Bank of New Zealand left the official cash rate

unchanged at 1.75% Thursday and made small tweaks in the statement that pointed

to growth risks growing forward but also slightly moderated its language on the

exchange rate. 

     In his first OCR statement since taking over as Acting Governor on Tuesday,

Grant Spencer maintained the central bank's policy outlook: "Monetary policy

will remain accommodative for a considerable period. Numerous uncertainties

remain and policy may need to adjust accordingly."

     Spencer will serve in an interim capacity for six months while a new

governor is chosen to replace Graeme Wheeler, whose five-year term ended

Tuesday.

     The RBNZ said second quarter GDP grew in line with expectations but

construction was weaker than expected. 

     Weaker construction, if sustained, could have bigger implications for

monetary policy given it is expected to be a major contributor to non-tradable

inflation and also to growth.

     The RBNZ also no longer characterized future population growth as "strong,"

another important factor for future monetary policy. Immigration could be

adversely affected by the policies of whoever forms the next government. In his

final speech, ex-governor Wheeler said a sharp decline in net immigration would

be a key domestic risk for the economy.

     The RBNZ said growth is projected to maintain its current pace going

forward, supported by accommodative monetary policy, population growth, elevated

terms of trade, and fiscal stimulus. But this language provided no direct hint

on whether there has been any downgrade in the outlook. This will be clear at

the next decision on November 9, which will be accompanied by a full update of

the central bank's outlook for the economy.

     On the exchange rate, the RBNZ acknowledged that the trade-weighted

exchange rate has eased slightly since the August statement but said a lower New

Zealand dollar "would help" to increase tradables inflation and deliver more

balanced growth.

     This is slightly more moderate language to the previous statement, when the

RNNZ said a lower New Zealand dollar "is needed" to increase tradables

inflation. 

     There was a small tweak in the commentary on inflation, with the RBNZ

replacing the line "the outlook for tradables inflation remains weak" with a

reference to "volatility in tradables inflation." This might suggest a very

minor upgrade in the inflation outlook, though much will depend on how the

exchange rate performs in the months ahead.

     As expected, there were no changes in the commentary on global growth and

inflation, or on the local housing market. 

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

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