RESEND: RBNZ reviews 4.5% 'neutral' monetary policy setting 12 Mar 2015
Related articles
- NZ consumers grow more upbeat, may resume spending Business
- Knowles quits as CEO of KiwiBank Business
- NZ migration bolstered by British invasion Migration
- Sludge Report #192: The Naked Budget Columns
- Budget 2010 – Building the Recovery News
- NZ manufacturing activity reaches highest since 04 Business
- NZ dollar hits 22-month high vs euro Business
- Unemployment rate falls from 7.1 to 6 percent Recruitment
- OceanaGold finds new gold deposits at Fraser mine Business
- Transpower gets go-ahead for $170m SI upgrade Business
RESEND: RBNZ reviewing 4.5% 'neutral' monetary policy setting
(Fixes scramble in third paragraph)
By Paul McBeth
March 12 (BusinessDesk) - The Reserve Bank is reviewing its 4.5 percent assumption for a neutral official cash rate setting as globally low inflation feeds into the local economy through the exchange rate.
Governor Graeme Wheeler told Parliament's finance and expenditure committee that work is underway to review what the central bank thinks is a neutral setting - where the OCR neither stimulates nor holds back economic growth. It's traditionally thought that's around 4.5 percent, but is "less sure of that," Wheeler said.
"We want to do more work around that" in terms of ensuring lower interest rates are consistent with economic growth that isn't inflationary, he said.
In today's monetary policy statement, the bank said it lowered its neutral nominal 90 day interest rate assumption following the global financial crisis, but was still unsure whether those changes were sufficient to reflect developments in recent years, including the more recent signs that longer term inflation expectations have adjusted lower.
Reserve Bank chief economist John McDermott told the committee the country's strong exchange rate was one of the channels through which low global inflation was feeding into New Zealand, and that "might be something we have to lean against."
Wheeler again reiterated his view that the local currency was unjustifiably high and unsustainable, and that “a substantial downward correction in the real exchange rate was needed to put New Zealand’s external accounts on a more sustainable footing.”
He welcomed the kiwi's recent decline against the greenback as global markets prepare for the US Federal Reserve to start raising interest rates, and said the central bank would prefer the Fed to act earlier rather than later.
The kiwi jumped more than 1 US cent in response to the statement, after some traders were surprised by Wheeler's view that rates could go still go up. The local currency recently traded at 73.20 cents.
The bank today kept the OCR at 3.5 percent while dropping any future increases from the forecast track of the 90-day bank bill rate, which is seen as a proxy for the key rate, with a strong currency, the slump in oil prices and low global inflation keeping the pace of local consumer price increases subdued.
The bank can look through the initial price shock of the drop in oil prices, which is seen as a one-off, but if that feeds into reduced wage and price expectations, Wheeler may have to respond with lower interest rates.
When considering today's review, Wheeler told the committee that he weighed up interest rate cuts by about 20 other central banks, including seven in advanced economies, since January, but decided New Zealand's strong economic momentum, growing labour market, falling fixed-term mortgage rates, and positive output gap - where growth isn't inflationary - meant a reduction wasn't warranted.
"The cost of capital doesn't appear to be a significant constraint for business," Wheeler said. "If you look at the monetary policy setting, it's 3.5 percent, we still say it's expansionary, stimulatory for the economy."
(BusinessDesk)
News
Hilary Timmins' Award-Winning UK Documentary Series To Inspire NZ Students
29 Jun 2020 Education
Dream Catchers, produced and directed by Hilary Timmins, celebrates the success stories of more than thirty inspirational New... more
New Zealand reaffirms support for Flight MH17 judicial process
7 Mar 2020 News
Ahead of the start of the criminal trial in the Netherlands on 9 March, Foreign Minister Winston Peters has reaffirmed the need to... more
Business
NZ Government's Economic package to fight COVID-19
17 Mar 2020 Business News
The Coalition Government has launched the most significant peace-time economic plan in modern New Zealand history to cushion the... more
NZ Government announces aviation relief package
19 Mar 2020 Business News
Transport Minister Phil Twyford today outlined the first tranche of the $600 million aviation sector relief package announced earlier... more
Living
Diversity was Key at New Zealand Trade Tasting in London
6 Jun 2022 Food & Wine
New Zealand Winegrowers Annual Trade Tasting was recently held in London, on Wednesday 4 May, in Lindley Hall.
It was the first... more
Kiwi author stuns Behind the Butterfly Gate
12 Jan 2022 Arts
Hidden behind the Butterfly Gate is where the secret has been kept for 76 years...
New Zealand writer Merryn Corcoran’s... more
Property
Fairer rules for tenants and landlords
17 Nov 2019 Property
17 NOVEMBER 2019
The Government has delivered on its promise to the over one million New Zealanders who now rent to make it fairer... more
New Zealand Government will not implement a Capital Gains Tax
17 Apr 2019 Property
The Coalition Government will not proceed with the Tax Working Group’s recommendation for a capital gains tax, Jacinda Ardern... more
Migration
Boosting border security with electronic travel authority – now over 500,000 issued
19 Nov 2019 Migration
19 NOVEMBER 2019
We’ve improved border security with the NZeTA, New Zealand Electronic Travel Authority, which helps us to... more
Christchurch reinstated as refugee settlement location
18 Aug 2018 Migration
18 AUGUST 2018
HON IAIN LEES-GALLOWAY
The announcement that Christchurch can once again be a settlement location for refugees... more
Travel
Gallipoli Anzac Day services cancelled
19 Mar 2020 Travel & Tourism
The New Zealand and Australian Governments have announced this year’s joint Anzac Day services at Gallipoli will be cancelled... more
New Zealanders advised not to travel overseas
19 Mar 2020 Travel & Tourism
New Zealanders advised not to travel overseas
more
Sport
The Skipper's Diary: Sir Richard Hadlee honouring his father and NZ's Forty-Niners
27 Oct 2019 Cricket
NZNewsUK London Editor Charlotte Everett spoke to Sir Richard Hadlee about why he’s chosen to publish his father’s... more
PREVIEW: All Blacks v England semi-final
26 Oct 2019 Rugby
The two most convincing quarterfinals winners are set to square off in a semifinal showdown for the ages when the All Blacks meet old... more
Columns
Gordon Campbell on the Gareth Morgan crusade
11 Nov 2016 Opinion
Gordon Campbell on the Gareth Morgan crusade
First published on Werewolf
The ghastly likes of Marine Le Pen in France and Geert ... more
Gordon Campbell on the US election outcome
10 Nov 2016 Opinion
Column - Gordon Campbell
Gordon Campbell on the US election outcome
Well um.. on the bright side, there (probably)... more
Kiwi Success
Congratulations to Loder Cup winner
26 Sep 2018 People
25 SEPTEMBER 2018
The Loder Cup, one of New Zealand’s oldest conservation awards, has been awarded to Robert McGowan for 2018... more
Appointments to New Zealand National Commission for UNESCO
16 Aug 2018 Appointments
16 AUGUST 2018Appointments to New Zealand National Commission for UNESCO
HON JENNY SALESA
Associate Education Minister Jenny Salesa is... more
Recruitment
Historic pay equity settlement for education support workers
14 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more
Historic pay equity settlement for education support workers
22 Aug 2018 Recruitment
14 AUGUST 2018Historic pay equity settlement for education support workers
RT HON JACINDA ARDERN
HON CHRIS HIPKINS
Prime Minister
The... more