The RBNZ have today made their announcement on interest rates.
As expected, the OCR remains on hold and a statement was released earlier today by Reserve Bank Governor Adrian Orr, who has stressed the importance of communication since taking the helm of the RBNZ in March.
Orr has left the official cash rate at a record-low 1.75 percent as expected.
The straight talking Governor of New Zealand’s central bank has pledged to modernise the bank’s communication strategy, saying it needs to rebuild trust with its audience and make itself more accessible to the wider population.
He opened his statement by saying, “Tena koutou katoa, welcome all.”
“The Official Cash Rate (OCR) will remain at 1.75 percent for now. However, we are well positioned to manage change in either direction – up or down – as necessary.”
“Our outlook for the New Zealand economy, as detailed in the May Monetary Policy Statement, remains intact,” he said. “Employment is around its sustainable level and consumer price inflation remains below the 2 percent mid-point of our target, necessitating continued supportive monetary policy for some time to come.”
“Global economic growth is expected to support demand for our products and services. Global inflationary pressure is also expected to be higher but remain modest. This outlook has been tempered slightly by trade tensions in some major economies. Ongoing volatility in some emerging market economies continues.”
“Domestically, ongoing spending and investment, by both households and government, is expected to support growth. However, the recent weaker GDP outturn implies marginally more spare capacity in the economy than we anticipated. The Government’s projected spending impulse is also slightly lower and later than anticipated.”
“CPI inflation is likely to increase in the near term due to higher fuel prices. Beyond that, inflation is expected to gradually rise to our 2 percent annual target, resulting from capacity pressures.”
“The best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period.”
Notably, the bill for restricting foreign buyers has been softened from the initial proposal.
The Westpac Weekly reported earlier this week in their NZ week ahead and data wrap:
Housing: House price inflation has slowed again in the last few months, with Auckland prices falling slightly. The new Government’s array of policies aimed at dampening housing speculation appear to be having some bite. The ‘bright-line’ test for capital gains on investment properties has been extended from two to five years, restrictions on foreign buyers will soon come into force, and negative gearing will start to be phased out next year.
We are forecasting house prices to be essentially flat over the next few years. However, the extent of the housing slowdown will depend on how some of these policies are specified, which is still up in the air to some degree. Notably, the bill for restricting foreign buyers has been softened from the initial proposal.
Under certain conditions, foreign buyers will no longer be forced to on-sell completed apartments that they had purchased off the plan. The property transfer statistics suggest that foreign buyers are already concentrated in the apartment space (they account for a much higher share of sales in central Auckland and Queenstown). So this could make the policy significantly less binding than we had assumed.
Construction: capacity constraints and access to finance continue to present a challenge for the building industry. However, building consents have remained strong in recent months, and have been particularly strong for multiples (apartments and townhouses) in Auckland, which is precisely where the growth is most needed. We expect a lift in building activity over the rest of this year, but at a gradual pace.
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