The Reserve Bank of New Zealand (RBNZ) held interest rates at a record low and said it doesn’t expect to raise them for two years amid weak inflation. “Monetary policy will remain accommodative for a considerable period,” Reserve Bank Governor Graeme Wheeler said in a statement after keeping the official cash rate at 1.75 percent. The bank lowered its projections for inflation.
“A lower New Zealand dollar is needed to increase tradables inflation and help deliver more balanced growth,” Wheeler said. The central bank maintained its forecast that rates won’t rise until the third quarter of 2019. The kiwi has climbed more than 7 percent against the greenback since the RBNZ’s last set of forecasts on May 11.
ASB Bank economists said the mild surprise in today’s release was that the central bank didn’t push out its forecast policy tightening due to a weaker inflation outlook. While New Zealand’s economy has been expanding over the past several years, supported by immigration and booming tourism and construction, growth fell short of expectations in the fourth quarter of 2016 and the first quarter of 2017. Employment declined in the second quarter as firms became more cautious and wage inflation remains subdued.