Cash rate remains unchanged at 1.75%

The Reserve Bank has held its cash rate unchanged as expected amid subdued inflation and moderate economic growth.

Deputy Reserve Bank Governor Grant Spencer. Photo: RESERVE BANK

The official cash rate (OCR) was at a record-low 1.75 percent, where it has been for more than a year.

Acting Reserve Bank governor Grant Spencer said the economy had been weaker than expected because of the weather at the end of last year, but it should pick up.

“Growth is expected to strengthen, supported by accommodative monetary policy, a high terms of trade, government spending and population growth. Labour market conditions are projected to tighten further,” he said in a statement.

He said the KiwiBuild housing programme was expected to boost activity from 2019, but house price inflation was moderate with restrained credit growth and weak house sales.

Mr Spencer said inflation was expected to be softer in the near term because of softer food and oil prices, but it would gradually pick up towards the targeted 2 percent level.

“Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly,” he said.

Economists expect the next move in interest rates to be a rise around mid-2019.

“We continue to expect that the RBNZ will keep the OCR on hold until August 2019. The RBNZ‘s statement suggests little change in the RBNZ‘s underlying outlook,” said ASB‘s chief economist Nick Tuffley.

A new governor, Adrian Orr, will take over next week and the government will give him an instruction to promote full employment as well as keep inflation under control.

The RBNZ‘s on-hold stance was in contrast to the United States Federal Reserve, where the new head Jerome Powell delivered a quarter-percentage-point rise to take the benchmark rate to between 1.5 percent and 1.75 percent.

The rise had been expected and the Fed signalled two more rises this year and three rises in 2019.

That led the US dollar to fall sending the New Zealand dollar nearly half a cent higher. It last traded around US72.35 cents.