The Reserve Bank of New Zealand says it might not move the official cash rate for more than two years as it adds to voices pointing to a speed-bump in economic growth.
Bank Governor Adrian Orr on Thursday announced the rate would stay unchanged at its record-low 1.75 per cent, where it has been since late 2016.
However, in a surprise that comes amid warnings from Treasury this week that growth predicted earlier in the year may ease, the central bank pushed out its expectation for an official cash rate (OCR) move by a full year, from September 2019 to September 2020.
“The recent slower economic growth gives us more confidence that there is no immediate capacity pressure leading to the rising inflation,” Mr Orr said.
The bank has stayed neutral about whether the next move will be up or down.
But its broader economic forecasts on Thursday were carefully watched after Treasury suggested earlier this week that forecasts in May’s government budget could soften by year-end, largely on the back of a cooling housing market and global tensions.
The RBNZ also pointed to a weaker outlook, with growth tipped to 2.8 per cent for the year, about 0.5 per cent lower than it predicted in May.
“While recent economic growth has moderated, we expect it to pick up pace over the rest of this year and be maintained through 2019,” Mr Orr said.
The bank also acknowledged the risks posed to its forecast by recent low levels in surveyed business confidence.
“The recent moderation in growth could last longer. Low business confidence can affect employment and investment decisions,” Mr Orr.
Government ministers have this week argued jobs and wage growth remain strong and overall economic growth gains are high by OECD standards, in response to opposition attacks that the Labour-led government’s policies are spooking business.
Finance Minister Grant Robertson on Thursday talked down the significance of the Reserve Bank shift, saying the long-term picture remained strong.
“They’re reflecting some of the other data and commentary which we’ve seen about a slight slowdown in growth projections for this year,” he told reporters.
“But bear in mind that over the forecast period they are still reporting a 3 per cent growth rate. That’s still a very solid growth rate. It still reflects the transition that’s going on in the economy.”
Mr Orr on Thursday said a lower Kiwi dollar and global growth would support exporters, while government spending and investment at home was set to rise as household and construction spending remained “solid”.
“We expect the unemployment rate to decline modestly from its current level,” he said.
The bank also welcomed early signs that core inflation was moving towards its two per cent midpoint target.