MNI REVIEW: RBNZ Leaves Rates On Hold, More Cuts Likely

By Lachlan Colquhoun

     SYDNEY (MNI) - The Reserve Bank of New Zealand left the Official Cash Rate

unchanged at 1.5% Wednesday but conceded that "a lower OCR may be needed over

time" to meet its objectives.

     Slower domestic growth dampened by softer house prices and subdued business

sentiment were cited as justification for further cuts, with the RBNZ saying a

lower OCR may be needed given the "downside risks around the employment and

inflation outlook".

     "We expect low interest rates and increased government spending to support

a lift in economic growth and employment," the Bank's statement said.

     "Inflation is expected to rise to the 2% mid-point of our target range, and

employment to maintain near its maximum sustainable level.

     The RBNZ cut rates by 25 basis points in May in a pre-emptive move to

stimulate the economy and move inflation and employment towards targeted levels.

     Before the May decision, modelling by the RBNZ suggested the Official Cash

Rate might need to be reduced by up to 40 basis points to achieve its inflation

and employment targets over the next two to three years.

     --DUAL MANDATE

     The Bank now has a dual mandate to pursue an inflation target of between 1%

and 3% along with a labour market "operating near maximum sustainable

employment."

     Inflation is currently within the target range, at 1.5%, while unemployment

increased slightly in the final quarter of 2018 to reach 4.3%. Annualised growth

has fallen to 1.8%.

     In its statement today, the RBNZ cited the impact of a slowing global

economy on New Zealand, saying reduced migrant inflows were undermining

employment and wages growth.

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

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