Published: Thu, August 10, 2017
Hi-Tech | By Ellis Neal

New Zealand central bank keeps rates on hold

New Zealand central bank keeps rates on hold

The bank made no changes to its official cash rate forecasts, which project rates will rise in early 2020. Inflation has slowed more than economists forecast and economic growth has disappointed on the downside. The New Zealand Dollar and local front-end government bond yields initially struggled to find direction.

The New Zealand dollar fell as a less dovish than expected statement and forecasts from the central bank were overshadowed by tensions between the United States and North Korea.

The kiwi traded at US73.26 cents as at 8am on Thursday in Wellington from US73.16c late Wednesday. The kiwi has climbed more than 7 percent against the greenback since the RBNZ's last set of forecasts on May 11.

Governor Wheeler reiterated that the monetary policy would remain accommodative for some time. "Markets were primed for something slightly more dovish". Swaps data show about an 80 percent chance of an increase by next August.

WELLINGTON, Aug 10 (Reuters) - The Reserve Bank of New Zealand stuck firmly to its neutral stance on Thursday, saying there was no need to cut rates given a likely pick-up in inflation and appeared to be less anxious about the country's strong currency than some expected.

The mood towards the antipodean currency could pick up a little if July's food prices data points towards an uptick in inflationary pressure, though.

The kiwi's strength is a headache for the RBNZ because it damps import prices and suppresses inflation.

Wheeler has had to contend with a global environment of low inflation and while major central banks' ultra-loose policy has had a role in that, he said there were other structural changes that had also kept a lid on rising consumer prices. Non-tradable inflation remains moderate but is expected to increase gradually as capacity pressure increases, bringing headline inflation to the midpoint of the target range over the medium term.

The central bank expected growth to speed up, supported by low interest rates, strong population growth and fiscal stimulus in the 2017 budget. It forecast growth to stay above 3% in coming years.

According to RBNZ policy makers, global economic growth increased and became more broad-based but wage growth subdued due to surplus capacity. "Numerous uncertainties remain and policy may need to adjust accordingly".

That's at least partly due to lending restrictions introduced by Wheeler, whose five-year term as governor ends September 26.

The RBNZ has been balancing a nascent recovery in inflation against the demands of a frothy housing market, which is now showing some signs of cooling thanks to loan-to-value restrictions and banks lifting mortgage rates independent of the official cash rate.

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