RBNZ Preview: OCR set to dwell at 1.75%

Mario Blascak, PhD Independent Analyst

The Reserve Bank of New Zealand (RBNZ) is widely expected to leave the key interest rates at record lows for about another year, as the tight labor market in New Zealand is not enough to press on prices to rise.

The RBNZ is set to publish its quarterly monetary policy statement and review the benchmark Official Cash Rate (OCR) on Thursday Wellington time, that equals to London evening.

The job is set to be easy for the RBNZ with the key quarterly labor market report due just one day before the policy announcement. Statistics New Zealand will publish the household labor force survey on Tuesday evening London time with the market expecting the unemployment rate to remain steady at 4.6%, while some think the rate will drop to 4.5%, representing a new nine-year low.

While the NZ economy seems to go full steam ahead with the unemployment rate falling, the main policy target, the inflation rate remains stubbornly low. In January Statistics New Zealand said the consumer price index decelerated to 1.6% y/y with market analysts now seeing very little chance of monetary policy tightening on less than a year time from now.

Economists at all of the four major Australian and New Zealand banks now expect the OCR to remain unchanged until at least early 2019. The forecasts from RBNZ are even more conservative anticipating the first policy rate move in 2020.

The NZ interest rate outlook is in contrast with major central banks around the world.

After slashing interest rates to effectively zero in the wake of the global financial crisis, major central banks in Europe, the UK and in particular the US, are all expected to raise interest rates in 2018.

Author

Mario Blascak, PhD

Independent Analyst

Dr. Mário Bla&scaron;čák worked in professional finance and banking for 15 years before moving to journalism. While working for Austrian and German banks, he specialized in covering markets and macroeconomics.

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