MNI REVIEW: RBNZ On Hold; Orr Says Econ Outlook 'Not As Bleak'

By Lachlan Colquhoun

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

unchanged at an already record low 1.0% Wednesday, while dialling back the

rhetoric on the need for further easing.

     The Bank, which has already cut the OCR by 75 bps in two moves this year,

had been expected to cut by a further 25 bps but RBNZ Governor Adrian Orr said

that monetary policy was already highly stimulative, noting the economic picture

was "not as bleak' as earlier in the year.

     "If the next move is difficult to decide then you are in a good place now,"

Orr said in answer to a question at the press conference after the announcement.

     "We have the ability to observe the data knowing that we are adding

significant stimulus, and we want to observe some of the outcomes," he said.

However, Orr admitted the Bank was prepared to cut rates again "if circumstances

change" but he was confident around current policy settings.

     --NO URGENCY

     While conceding that growth continued to slow and inflation -- at 1.5% --

remained below the lower-end of the target range, Orr said the Bank's view was

that there was "no urgency for further easing at the moment."

     This was despite a downward revision of growth in the Monetary Policy

Statement, down from 2.4% by 2021 to 2.1%.

     The Bank's statement noted that employment, a closely watched metric,

"remains close to its maximum sustainable level", despite picking up to 4.2%

recently.

     According to Orr, the large -- and unexpected -- 50 bps cut in August had

provided a significant amount of stimulus and put the Bank, and the economy, "in

the fortuitous position we are in now."

     --TRANSMISSION

     The RBNZ has observed that its monetary policy is being transmitted through

to the economy with lower lending rates, which were expected to drive a pick-up

in investment and consumer spending from next year.

     "We know that monetary and fiscal stimulus is coming through and they

underpin our projections," said Orr.

     Assistant Governor Christian Hawkesby told a press conference following the

policy decision the Bank was aware markets were pricing in further rate cuts

next year, but said that while rates were likely to remain low for a prolonged

period, but they were based on economic data which could change.

     The Bank would, however, publish a "clear theoretical framework" of

alternative policy options early in 2020, such as negative interest rate

scenarios if they became necessary. "We are looking at additional tools," said

Orr.

     He said the RBNZ would publish a "menu" of these additional tools and a

"pecking order of how they might be used", although such measures were not

urgent given the stimulatory impact of this year's rate cuts.

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

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