RBNZ Makes Decision On Interest Rates

Posted 9th August 2018

The RBNZ Governor Adrian Orr delivered his Monetary Policy Statement today and has announced that interest rates will remain at a record low of 1.75%.

Financial reporting and opinion alike expected that the RBNZ would keep the Official Cash Rate unchanged at today’s August policy meeting.

The New Zealand economy has delivered mixed messages recently, with growth slowing but inflation pressures rising. 

Business confidence surveys are painting an increasingly dismal picture of the state of the economy, and we are seeing mixed messages of growth slowing but inflation pressures rising. However employment continues to grow at a solid pace, and if anything has regained some momentum in the last quarter, according to the Westpac Weekly economic report. 

Statement by Reserve Bank Governor Adrian Orr released today:

Tena koutou katoa, welcome all.

The Official Cash Rate (OCR) remains at 1.75 percent. We expect to keep the OCR at this level through 2019 and into 2020, longer than we projected in our May Statement. The direction of our next OCR move could be up or down.

While recent economic growth has moderated, we expect it to pick up pace over the rest of this year and be maintained through 2019.

Robust global growth and a lower New Zealand dollar exchange rate will support export earnings. At home, capacity and labour constraints promote business investment, supported by low interest rates. Government spending and investment is also set to rise, while residential construction and household spending remain solid.

"KiwiBuild is expected to start supporting residential investment towards the end of 2019."

The labour market has tightened over the past year and employment is roughly around its maximum sustainable level. We expect the unemployment rate to decline modestly from its current level.

There are welcome early signs of core inflation rising. Inflation will increase towards 2 percent over the projection period as capacity pressures bite. This path may be bumpy however, with one-off price changes from global oil prices, a lower exchange rate, and announced petrol excise tax rises expected. We will look through this volatility as appropriate, and only respond to any persistent movements in inflation.

Risks remain to our central forecast. The recent moderation in growth could last longer. Low business confidence can affect employment and investment decisions. Conversely, there is a chance that inflation could increase faster if cost pressures can pass through into higher prices and impact inflation expectations.

We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation.

Meitaki, thanks.

In the accompanying Monetary Policy Statement, Governor Orr stated; "Economic growth is expected to pick up to above trend in 2019. Fiscal and monetary stimulus underpin this growth outlook. A pick up in net exports is also expected to contribute to growth. Capacity pressure is expected to increase as growth rises."

Further to that he said; "KiwiBuild is expected to start supporting residential investment towards the end of 2019. Following the release of Budget 2018, we have updated our KiwiBuild assumptions. As a result, the outlook for residential investment over the medium term is softer than in the May Statement."



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