Monetary policy review

RBNZ’s diagnosis: come and see me when you’re actually sick

12 Feb 2020
Gareth Kiernan's-profile-photo
Gareth Kiernan

Our take on the latest Monetary policy review (Wed 12 Feb 2020)

OCR held at 1.00%
Bank guesses at small effect of coronavirus on NZ economy
Rate cut possible if virus persists

The key numbers...

  • The Reserve Bank kept the official cash rate (OCR) at 1%, taking a wait-and-see approach regarding the effects of coronavirus (COVID-19) on the New Zealand economy.
  • Leaving aside the virus, the Bank’s outlook for the economy is more upbeat between mid-2020 and late 2021.
  • The Bank noted that “the outlook for government investment is stronger following the Government’s announcements in December” and that “the global economic environment has shown signs of stabilising… [as] trade tensions have receded somewhat.”
  • The Bank has also revised up its outlook for household spending, seemingly due to faster house price inflation, which is expected to peak at 7.7%pa in June 2020.
  • The Bank’s analysis suggests that underlying inflation is now only slightly below the 2%pa midpoint of the target band, and the fact that the underutilisation rate has fallen to an 11-year low indicates that the labour market is continuing to tighten.

More upbeat on growth

Comparison of Reserve Bank's GDP forecasts, year-end % changes
3538

...and our reaction

  • Without COVID-19, it appears the Reserve Bank believes that the combination of monetary and fiscal stimulus already announced would be sufficient to stabilise the New Zealand economy.
  • The Bank’s forecasts show no further rate cuts, with the OCR starting to increase again from the second half of 2021.
  • The Bank’s assumption that COVID-19 will be contained internationally by the end of February, allowing a hit of just 0.3 percentage points to New Zealand’s March quarter GDP, appears to be optimistic to us.
  • Half the forecasters in a Reuters poll last week expected another cut to the OCR before the end of this year and, given that COVID-19 is likely to be the catalyst for further easing, we would expect such a cut to happen sooner rather than later.
  • If COVID-19 continues to significantly dampen goods and services exports beyond this month, an interest rate cut is likely at the next review on March 25, although we note there will still be very limited quantitative evidence of the virus’ effect by that date.

Latest updates

Premium
Monetary policy review

OCR up for first time in three years, as expected

Wed 8 Jul 2026
2.5% Official cash rate from 2.25%
Inflation now expected by the Bank to peak at 3.9%pa
Further rate rises likely but uncertainty about the timing
Premium
Monetary policy review

Split decision keeps OCR at 2.25% for now

Wed 27 May 2026
2.25% Official cash rate unchanged
Casting vote made by Governor with a 3-3 vote split among Committee members
RBNZ forecast OCR to reach 3% by end of 2026
Monetary policy review

Reserve Bank holds at 2.25%, but watches vigilantly

Wed 8 Apr 2026
2.25% Official cash rate unchanged
Bank places more emphasis on potential inflationary risks
4.2% Annual inflation forecast to accelerate by June this year
Monetary policy review

OCR on hold, but set to lift slightly quicker

Wed 18 Feb 2026
2.25% Official cash rate (OCR) unchanged
Dec-26 qtr First OCR rise now expected a quarter earlier than last MPS
Sep or Oct Financial markets picking for the first increase