WELLINGTON: New Zealand's central bank held its official cash rate (OCR) at a record low for a 12th consecutive meeting on Thursday, reaffirming the likelihood of low rates well in to next year because of a high local dollar, tame inflation and global risks.
The Reserve Bank of New Zealand (RBNZ) said it remained "appropriate" for the benchmark rate to be held at 2.5 percent, where it has been since April last year, the longest period the rate has been left unchanged.
"The Reserve Bank is in a reasonably sweet position with regard to monetary policy settings. It can increase rates when required. It can cut rates when required," RBNZ Governor Alan Bollard told reporters in his last monetary statement.
He pointed to an improving housing market and reconstruction activity, which was offset by government's fiscal tightening and a high local currency.
Bollard leaves at the end of the month after a decade in the position and will be replaced by Graeme Wheeler, a former managing director of the World Bank.
Bollard, who will head the secretariat of Asia-Pacific Economic Cooperation in Singapore from next year, has been a low-key governor content to keep rate steady for long periods, although he delivered large, rapid cuts during the 2008/09 global financial crisis.
The New Zealand dollar was barely ruffled, edging up around 10 points to $0.8206, while interest rate futures were also steady, as the bank kept its mild tightening bias in the medium term.
In contrast, financial market pricing based on interest rate swaps eased a shade to 8 basis points of rate cuts over the next 12 months due to global uncertainty.
A Reuters poll taken after the latest review showed all 17 analysts still expected the next move to be a rise, but several have pushed out their forecast to later in 2013.
BENIGN RATE OUTLOOK
The bank further trimmed its forecast for the 90-day bank bill, a barometer for future moves in the cash rate, even as it has identified inflation threats from the rebuilding of earthquake-damaged Christchurch, and a lift in house prices to record levels in the country's biggest city, Auckland.
The bank now expects the bank bills to be 2.7 percent later this year, 2.8 percent by December next year, and to 3.3 percent March 2015, from currently around 2.63 percent.
"We continue to expect the RBNZ will lift the OCR in June 2013, although the risks are skewed to a later start on the back of global risks," said ASB Bank chief economist Nick Tuffley.
Backing the outlook was tame inflation, which slowed to 1.0 percent in the June period, the lowest annual pace in nearly 13 years, and at the bottom of the RBNZ's target band.
The RBNZ said the high New Zealand dollar was undermining export earnings and encouraging substitution by imported goods and services.
The trade-weighted kiwi, the RBNZ's preferred currency measure against a basket of currencies, is up about 6 percent from a five-month low in May.
Recent data has shown unemployment stubbornly high and households cautious on spending, but there has been a lift in dairy prices, a pick-up in the housing market and confidence is improving slightly.
In addition, the government is sticking to its belt-tightening plan to bring the budget back into the black by 2015.
The RBNZ said the external outlook was still weak, specifically mentioning the slowdown in China, its second biggest trading partner after Australia.
Highlighting the patchy economy, manufacturing activity in New Zealand fell further into contraction in August to its lowest level in nine months.
The economy likely grew 0.3 percent in the second quarter from the first three months of the year, and 2.3 percent from a year earlier, a Reuters poll of economists showed. The data will be released on Sept 20.
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