Monetary policy review

Inflation expectations weigh down the OCR

13 Feb 2019
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Paul Barkle

Our take on the latest Monetary policy review (Wed 13 Feb 2019)

OCR unchanged at 1.75%
Inflation forecast down
Forecast OCR hike pushed out

The key numbers...

  • We still expect a rate hike in late 2019, but the Reserve Bank's forecast indicators are not showing much strength through the next couple of years. 
  • Softer global growth forecasts and rising uncertainty provide headwinds that could delay future hikes.  
  • The Bank's inflation forecasts throughout 2019 and 2020 are notably lower than in November, adding some weight to the possibility of an interest rate cut. 

Inflation

Annual, Stats NZ, RBNZ estimates
3114

...and our reaction

  • The official cash rate remained unchanged, at 1.75%, for the first Monetary Policy Statement (MPS) of 2019.
  • The Bank pushed its forecast for the first rate hike out by a quarter, but expects to keep the rate constant for the foreseeable future. 
  • The language used in the MPS changed from the next move being "data dependant" in November, back to "could go up or down" as seen in the August MPS, signalling a greater possibility of a cut.
  • The Bank believes the New Zealand economy is sitting near maximal sustainable employment (with the Consumer Price Index showing slight signs of warmth) which provides an argument for raising rates in the near future.

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