MNI STATE OF PLAY: Rates On Hold As RBNZ Waits On Recovery

The Reserve Bank of New Zealand continued its wait for clearer signs on the recovery front as it kept policy on hold and signalled it was prepared to lower interest rates "if required" to achieve inflation and employment targets.

The Monetary Policy Committee left the Official Cash Rate at the record low 0.25%, a level that has held since March 2020. It also maintained the NZD100 billion quantitative easing program, with the RBNZ saying in its statement that the monetary stimulus was needed to achieve its inflation and employment targets and that it was prepared to cut interest rates further, if necessary, to drive the economy towards those targets.

"Meeting these requirements will necessitate considerable time and patience," the statement said.

HOUSING MARKET

The RBNZ's dovishness comes as it sees the economy beginning to improve, although "uncertainty remains elevated," it said.

Inflation is currently at 1.4% against the target range of 1-3%, and is forecast to increase to over 2% by mid-2023.

Unemployment fell by 0.4 percentage point to 4.9% in the December quarter, but the underutilization rate of 11.9% showed there is still excess capacity in the labour market.

However, the impact of recent government moves to dampen the housing market, with median prices up 23% in the last 12 months, would "take time to be observed," the bank said.

The government moves came after it specifically asked the RBNZ to factor housing prices into its policies.