RBNZ less dovish on rates than expected, favours lower NZ$

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While New Zealand's economy and labour market have been enjoying strong growth in recent years - buoyed by record migration stoking population growth, record low interest rates, a construction boom, and good terms of trade - flat productivity over the same period has meant wages haven't kept pace and that's something policymakers need to address, Wheeler told Parliament's finance and expenditure select committee. The bank maintained its forecast that rates won't rise until the third quarter of 2019, and lowered its projections for inflation.

After posting some of the fastest growth among advanced economies in recent years, there are tentative signs the economy is losing momentum: it grew less than expected in the first quarter, inflation slowed more than forecast in the second quarter, and employment unexpectedly contracted.

Reserve Bank of New Zealand NZ 796 Assistant Governor John McDermott said on Thursday that the central bank was "slightly more uncomfortable" with the level of the NZ dollar than it was in May.

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. RBNZ feels that a lower exchange rate needed to increase tradable inflation and deliver balanced growth.

RBNZ less dovish on rates than expected, favours lower NZ$

Inflation accelerated to 2.2 percent in the March quarter, returning to its 2 percent goal for the first time in more than five years.

But Wheeler, who leaves the job next month, said headline inflation was likely to decline and the outlook for tradables inflation was weak. "We would like to see a lower exchange rate", he said, before reminding his listeners around the world that intervention in the foreign exchange market is "always open" to the RBNZ. 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 bank also cited softening house price growth - a previous inflationary worry - attributing the slow-down to loan-to-value restrictions, affordability, and tightening credit conditions. RBNZ expects moderation to persist but the risk remains due to population growth and resource constraints.

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