Wed Jul 25, 2012 9:10pm EDT
* RBNZ says appropriate for rate to be held steady
* RBNZ says outlook consistent with its view in June
* NZ dollar nudges higher, debt futures barely moved
* Analysts expect next rate rise in 2013
By Mantik Kusjanto
WELLINGTON, July 26 (Reuters) – New Zealand’s central bank
held its official cash rate (OCR) at a record low for an 11th
consecutive meeting and gave no hint of any urgency to alter
policy with the economy growing modestly in the midst of the
euro zone debt crisis.
The Reserve Bank of New Zealand (RBNZ) said in a brief
statement that it remained “appropriate” for the OCR to be held
at 2.5 percent, where it has been since March 2011.
“The bank continues to expect economic activity to grow
modestly over the next few years,” outgoing RBNZ Governor Alan
Bollard said, pointing to an improving housing market and the
$16 billion rebuilding of earthquake damaged Christchurch.
Bollard, to be replaced by former World Bank official Graeme
Wheeler in September, said the economic outlook was consistent
with the bank’s June assessment, when it signalled rate rises
would most likely start in the second quarter of 2013.
Thursday’s decision was no surprise, after annual inflation
slowed to 1.0 percent in the April-June period, the lowest
annual pace in nearly 13 years, and at the bottom of the RBNZ’s
Analysts said the next move will likely be a rise, but the
benign inflation, patchy activity and growing risk in the euro
zone, will stay the bank’s hand.
“March is still the earliest we see the RBNZ lifting the
OCR, with Europe skewing the risks to a later start,” said ASB
bank chief economist Nick Tuffley.
Market reaction to the statement was muted, with the New
Zealand dollar edging up around 20 points to a high of
$0.7910 before settling back around $0.7900. Interest rate
futures were largely unmoved.
The bank noted the exchange rate was one factor constraining
growth. The trade-weighted kiwi, the RBNZ’s preferred
currency measure against a basket of currencies, is up about 5
percent from a five-month low in May.
While the currency strength is weighing on export earnings,
it is also keeping import prices and inflation pressures low.
OUTLOOK MODEST AND MIXED
Recent data have shown the economy growing modestly, but
activity is uneven, consumer and business confidence has
softened, households remain cautious with spending, and the
jobless rate is stubbornly high.
In addition, the government is firmly sticking to
belt-tightening to bring the budget back into the black by 2015.
But there have been signs of a pick-up in the housing
market, with prices hitting record levels in some cities, and
non-tradable inflation — a barometer of domestic price
pressures — up 2.4 percent in the year through June.
A Reuters poll taken after the latest rate review showed
analysts divided over when the first rise will come, between the
first and second quarters 2013, while two see it in early 2014.
All those polled see no chance of a rate change at the
September review. “The risk is that the first rate hike is
pushed out to Q3 next year,” said Citi head of market economics
In contrast, financial market pricing based on interest rate
swaps reflects the global risks with the chances of a
rate cut in September put at 37 percent, but with only 13 basis
points of rate cuts factored in over the next 12 months.
New Zealand’s key rate lags Australia’s 3.5 percent level
but outstrips the 0-0.1 percent in Japan, 0.75 percent in the
euro zone, and 0-0.25 percent in the United States, thus drawing
yield-hungry investors and underpinning the kiwi dollar.