MNI REVIEW: RBNZ On Hold, But Next Move 'Likely Lower'

By Lachlan Colquhoun

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

unchanged at 1.75% Wednesday, but changed its forward guidance, now saying that

the "most likely direction" for the next move in interest rates is down.

     The RBNZ cited a weaker global economic outlook and reduced momentum in

spending for its dovish shift in policy outlook.

     "Domestic growth slowed in 2018, with softness in the housing market and

weak business investment contributing," the RBNZ said in the accompanying

statement.

     "The balance of risks to this outlook has shifted to the downside. The risk

of a more pronounced global downturn has increased and low business sentiment

continues to weigh on consumer spending," it added.

     The Bank has held rates steady at 1.75% since November 2016, and its most

recent Statement on Monetary Policy released in February said they were likely

to be unchanged "through 2019 and 2020."

     --REMAIN SUPPORTIVE

     In a statement announcing the OCR decision today, the RBNZ said core

consumer price inflation remained below its 2% midpoint, "necessitating

continued supportive monetary policy."

     "We will keep the OCR at an expansionary level for a considerable period to

contribute to maximising sustainable employment, and maintaining low and stable

inflation," the RBNZ said.

     GDP data for the fourth quarter of 2018 was released last week, showing

that although the economy grew by 0.6% for the quarter, annualised growth had

fallen to 2.3% from 2.6%.

     This is significantly lower than RBNZ expectations, which were for 3.0%

growth in 2019.

     RBNZ Governor Adrian Orr is set to make a major speech on the RBNZ's new

policy setting framework on Friday, at which more details of the Bank's emerging

outlook may be revealed.

     The next Statement on Monetary Police is due with an OCR decision on May 8.

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

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