RBNZ Keeps Rates Unchanged in Wake of Election
WELLINGTON, New Zealand--New Zealand's central bank left interest rates unchanged Thursday in a widely expected decision just days after a general election that could spell change for the bank's policy mandate.
At its first policy-setting meeting under interim chief Grant Spencer, the Reserve Bank of New Zealand left its official cash rate unchanged at 1.75%, as it continues to balance the need to nudge inflation higher against the risks of a frothy housing market.
Economists expect interest rates to remain unchanged for some time, with the RBNZ resisting the urge to follow the lead of its global couterparts, like the Bank of Canada and the U.S. Federal Reserve.
"Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly," Mr. Spencer said.
The New Zealand dollar was slightly weaker after the statement, trading around 72 US cents.
The RBNZ said headline inflation is likely to decline in coming quarters, reflecting volatility in tradables inflation--which should increase alongside capacity pressures, but that longer-term inflation expectations remained well anchored at around 2%.
While the economy made a moderate rebound in the second quarter after six months of anemic growth, inflation flatlined on a quarterly basis. Economists say the economy needs above-trend growth to guide inflation back into the middle of the RBNZ's 2-3% target band.
"Growth is projected to maintain its current pace going forward, supported by accommodative monetary policy, population growth, elevated terms of trade, and fiscal stimulus," the bank said in its statement.
A appreciation of the New Zealand dollar in trade-weighted terms in 2017 has generated concern at the RBNZ over its potential to crimp exports and push down domestic prices, though the uncertainty surrounding the election has pulled the kiwi down a tad in recent weeks.
The bank reiterated that a lower New Zealand dollar would help to increase tradables inflation and deliver more balanced growth.
It also again noted that house prices had cooled, although there remains a risk of resurgence in prices given population growth and resource constraints in the construction sector, it said.
Overheating property prices have been a major concern for the RBNZ, though the market is now showing some signs of cooling thanks to loan-to-value restrictions and banks lifting mortgage rates independent of the official cash rate. New Zealand's elevated house prices also struck a chord among discontent voters in the election.
Economists had expected the bank to play it safe and stick largely to the language of its previous statements at Mr. Spencer's debut as acting governor, especially with the bank's mandate under renewed political scrutiny.
Neither of New Zealand's two major parties secured an outright majority in the Sept. 23 election, effectively making the populist leader of a minority party kingmaker of the next coalition government.
The small New Zealand First party, led by Winston Peters, wants to expand the RBNZ's role beyond controlling inflation to a mandate that includes jobs, the exchange rate and other targets for the economy.
While tweaking the RBNZ's mandate in a coalition government with Prime Minister Bill English's National Party is unlikely to make much progress, a governing alliance with the Labour Party and the Greens could bring more substantial change--though analysts rule out any wholesale acceptance of Mr. Peters's recommendations.
The new government will also decide on whether to make Mr. Spencer's position as RBNZ chief permanent or replace him after six months in his role as acting governor.
Write to Ben Collins at ben.collins@wsj.com
(END) Dow Jones Newswires
September 27, 2017 16:41 ET (20:41 GMT)