Reserve Bank of New Zealand

January 28, 2015

The latest Board meeting with a decision to keep New Zealand’s official cash rate at 3.5%, the level since the fourth straight 25-basis point hike lf 2014.  The four increases, respectively in March, April, June and July, followed a three-year span with no change.  Today’s statement was more dovish than the previous one because of the disinflationary effects of falling oil prices and more volatile and uncertain global financial market conditions.  Today’s statement conveys a neutral directional bias in policy:  “we expect to keep the OCR on hold for some time. Future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.”  The prior statement on December 11 asserted that “with output projected to grow at or above capacity, CPI inflation is expected to approach the 2 percent midpoint of the Reserve Bank’s target range in the latter part of the forecast period. Some further increase in the OCR is expected to be required at a later stage.”  Regarding future inflation, officials now think, “headline annual inflation is expected to be below the target band through 2015, and could become negative for a period before moving back towards 2 percent, albeit more gradually than previously anticipated.”  One believe remains unchanged between December 11 and now: the kiwi is still overvalued and projected to depreciate in the period ahead, or so monetary officials now say.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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