MNI REVIEW: RBNZ Unchanged, See Rates On Hold Through End-2020

--RBNZ Reinstate View That Next Move In Rates Could Be Up Or Down

By Lachlan Colquhoun

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

unchanged at 1.75%, saying it will likely keep rates "at this level through 2019

and 2020", whilst reinstating guidance that the next move in rates could be

either up or down.

     "The direction of our next OCR move could be up or down", depending on how

the domestic and global economies performed, RBNZ Governor Adrian Orr said in a

statement alongside the rate decision.

     That guidance had been removed from the November MPS in favour of a nod

towards higher rates from mid-2020, although Orr noted then that rates cuts had

not been taken off the table. The OCR has been at 1.75% since November 2016.

     The RBNZ's decision was accompanied by the February Monetary Policy

Statement, which said low rates were needed to support economic growth and

inflation, and protect the trade-dependent New Zealand economy from lower global

growth, which would impact on exports.

     -GLOBAL RISKS

     Underlining the growing global risks, the RBNZ noted challenges facing

trading partners, but said low domestic rates would help underpin domestic

growth.

     "Trading-partner growth is expected to further moderate in 2019 and global

commodity prices have already softened, reducing the tailwind that New Zealand

economic activity has benefited from. The risk of a sharper downturn in

trading-partner growth has also heightened over recent months,"Orr said.

     "Despite the weaker global impetus, we expect low interest rates and

government spending to support a pick-up in New Zealand's GDP growth over 2019,"

he added.

     --INFLATION TO FALL

     Inflation, currently at 1.9%, just below the Bank's target range of between

2% and 3%, is forecast to fall to an annualised 1.6% when Q1 data reported,

picking up to 2.0% by the end of 2020.

     "As capacity pressures build, consumer price inflation is expected to rise

to around the mid-point of our target range at 2 percent," Orr said.

     "There are upside and downside risks to this outlook. A more pronounced

global downturn could weigh on domestic demand, but inflation could rise faster

if firms pass on cost increases to prices to a greater extent," he noted.

     "Core consumer price inflation remains below our 2 percent target

mid-point, necessitating continued supportive monetary policy," Orr said.

     The MPS cited the softening housing market as a "key risk" to consumption

growth, and singled out US-China trade tensions as the main downside risk

globally.

     RBNZ policy is focused on job creation in the expectation that lower rates

will support a tighter labour market which will flow through to consumption and

inflation.

     The Monetary Policy Statement noted that there were 60,000 more people

employed now than a year ago, and that Government spending on public

infrastructure was also driving economic growth and employment.

     The Bank sees the New Zealand dollar, which has weakened since 2017,

continuing in its current trading range. The Kiwi was last $0.6840, up from

$0.6750 Tuesday.

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

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