New Zealand's central bank kept interest rates steady on Thursday as expected and lowered its forecasts for inflation right out to 2020, suggesting investors need not fear the withdraw of stimulus for a very long time to come. Unlike some of its rich-world peers, the Reserve Bank of New Zealand (RBNZ) is under no pressure to lift rates from record lows of 1.75 percent, with inflation muted even as the economy enjoys solid growth.
"Monetary policy will remain accommodative for a considerable period," the bank said after its latest policy meeting. "Numerous uncertainties remain and policy may need to adjust accordingly." Indeed, its projections do not show rates reaching 2 percent until the first quarter of 2020, with some chance of a hike implied from mid-2019 onward.
"It is a justifiably dovish statement," said Ben Jarman, a senior economist at J.P Morgan in Sydney. "The recent reading on inflation has been on the downside." Consumer price inflation for the December quarter undershot all expectations at just 1.6 percent when the RBNZ had hoped it would be nearer 2 percent, the middle of its 1-3 percent target band. As a result, the bank had to lower its inflation forecasts for the next two years, with 2.0 percent now not reached until the third quarter of 2020.
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