Sharechat Logo

RBNZ sees interest rates near current levels for foreseeable future

Wednesday 5th June 2019

Text too small?

The Reserve Bank's central view is that interest rates will remain broadly around current levels for the foreseeable future but it has the room to provide more monetary stimulus if necessary, said assistant governor Christian Hawkesby. 

The New Zealand dollar rose as high as 66.36 US cents from 66.16 early today after the RBNZ published panel remarks he delivered to the Institute for Monetary and Economic Studies (Bank of Japan) last week in Tokyo, outlining recent changes at the bank, in particular the adoption of a committee structure and its decision-making process. 

“Thirty years ago New Zealand was prepared to accept a single expert – the governor – making decisions about how to fight inflation. People now expect to see how and why decisions are made, expect that decision makers reflect wider society, and that current issues and concerns are factored into the decision making,” he said.

The new structure emerged after phase one of a review of the Reserve Bank Act to modernise the policy frameworks, governance, and accountability arrangements announced by the Labour-led government shortly after taking office.

Last month, the newly minted committee opted to cut the official rate by 25 basis points to a record low 1.50 percent "to support the outlook for employment and inflation consistent with its policy remit," it said at the time. 

According to Hawkesby, "our central view is that New Zealand’s interest rates will remain broadly around current levels for the foreseeable future. However, we need to be ready to adapt to changing conditions, to meet our objectives even when confronted with unforeseen developments." 

He said the committee looked at several different scenarios, including not moving rates or cutting by a total of 75 basis points over the next 12 months, as it met over a seven-day period leading up to the decision. 

If rates had remained unchanged, the projections suggested that it would have taken a number of years for inflation to return to target, and employment would have fallen below the maximum sustainable level, he said. 

If it had lowered the OCR by around 75 basis points over the next 12 months, the projections suggested it would result in a situation where both inflation and employment would be overshooting their targets, he said.  

"By contrast, the baseline with the OCR around 40 basis points lower over the next 12 months, brought inflation back to target in a reasonable time period, with employment remaining near the maximum sustainable level. We decided this path captured our preferred strategy, and was robust to the key risks we had discussed," he said. 

Looking ahead, he said an issue that policymakers and academics are grappling with around the world is the role of both monetary and fiscal stimulus in a world of low interest rates. 

He noted, however, even with coordination between monetary and fiscal policy, if further macroeconomic stimulus is needed quickly, the first line of defence will still inevitably fall upon central banks.

"In New Zealand, we are in the strong position of having further room to provide conventional monetary stimulus if required - using the OCR."

(BusinessDesk)



  General Finance Advertising    

Comments from our readers

No comments yet

Add your comment:
Your name:
Your email:
Not displayed to the public
Comment:
Comments to Sharechat go through an approval process. Comments which are defamatory, abusive or in some way deemed inappropriate will not be approved. It is allowable to use some form of non-de-plume for your name, however we recommend real email addresses are used. Comments from free email addresses such as Gmail, Yahoo, Hotmail, etc may not be approved.

Related News:

RBNZ eyes Westpac Australia money laundering failures
Heritage buys Golden Healthcare; not mystery Metlife suitor
Alliance margins improve as swine fever boosts global meat prices
RBNZ eyes Westpac Australia money laundering failures
Precinct eyes new developments as Commercial Bay keeps to revised schedule
End to Tower's three year dividend drought in sight
Vital Healthcare's manager appoints new independent director
Argosy lifts first-half profit 15.2% on valuation gains
Metlifecare attracts 'credible' bidder after biggest trading day in 2 1/2 years
Serko to accelerate cash burn with North American push

IRG See IRG research reports