The Reserve Bank of New Zealand’s monetary policy board on Thursday elected to hold its Official Cash Rate steady at 3.50 percent – in line with expectations.
It was the second straight month with no change for the RBNZ, which had hiked the OCR by 25 basis points in each of previous four meetings prior to September.
Before that, there were 23 straight meetings with no change. The OCR had been at a record low 2.50 percent since March 10, 2011 as the country dealt with the global economic slowdown.
It wasn’t until this past March that the central bank felt confident enough in a recovery that it lifted the OCR.
“Growth in the New Zealand economy has been faster than trend over 2014, reducing unemployment and adding to demands on productive capacity. Output growth is expected to moderate over coming years, towards a more sustainable rate,” the bank said in a statement accompanying the decision.
New Zealand’s economic growth is supported by increasing construction activity and strength in consumption and business investment, the bank said.
Economic growth is expected to moderate in response to recent commodity price declines and the impact of policy tightening, and the effects are expected to impact the local currency in the near term.
“Lower commodity prices and increased global financial market volatility have taken some pressure off the New Zealand dollar. However, its current level remains unjustified and unsustainable and continues to constrain growth in the tradables sector. We expect a further significant depreciation,” the bank said.
The bank cited several risk factors, including pressures in the construction sector, non-tradables inflation, and how strongly net immigration will affect housing demand.
The RBNZ called it prudent to take some time and further observe the effects of its moves – but it did not rule out further action.
“The economy appears to be adjusting to the policy measures undertaken by the Bank over the past year. CPI inflation is currently at a low level despite above-trend growth. However, inflation is expected to increase as the expansion continues. A period of assessment remains appropriate before considering further policy adjustment,’ the bank said.
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