Tuesday, 15 Jun 2021

Reserve Bank leaves OCR unchanged: Kiwi dollar rises on inflation outlook

The Reserve Bank has left the official cash rate unchanged at a record low of 0.25 in its latest Monetary Policy Statement.

But it now has forecasts which imply it will begin hiking rates in the second half of next year.

The decision to keep the cash rate on hold was widely expected by economists.

Reserve Bank Governor Adrian Orr said the RBNZ saw inflation reaching 2.6 per cent in the second quarter of this year.

The kiwi dollar rose by 0.5 per cent to US72.64c.

The bond-buying (quantitative easing) programme will remain unchanged.

“The global economic outlook has continued to improve, with ongoing fiscal and monetary stimulus underpinning the recovery,” Orr said in the statement.

New Zealand’s commodity export prices had benefited from this rise in global demand, he noted.

However, the sustainability of the global economic recovery remained dependent on the containment of Covid-19.

“While economic growth in New Zealand slowed over the summer months following an earlier strong rebound, construction activity remains robust,” Orr said.

“The aggregate level of employment has also proved resilient, while fiscal spending continues to support domestic economic activity.”

The biggest bet in global economics right now is on whether post-Covid inflation will prove to be a short-term blip or a more persistent structural problem.

At issue is whether central banks, like the US Federal Reserve, will be able to hold the line on low rates or whether they’ll be forced to hike, to head off inflation.

The RBNZ continues to play its cards close to its chest on when a rate hike will be needed.

The Monetary Policy Committee said it would maintain its current stimulatory monetary settings until it was confident that consumer price inflation will be sustained near the 2 per cent per annum target midpoint, and that employment is at its maximum sustainable level.

“Meeting these requirements will necessitate considerable time and patience,” Orr said.

However the RBNZ’s forecasts now suggest it is on track to begin lifting teh rate in the second half of 2022.

That is inline with the market consensus, prior to today’s statement.

Source: Read Full Article

Related Posts