Reserve Bank of New Zealand Governor Adrian Orr said on Friday the fall in the local currency after this week’s monetary policy statement, in which he struck a dovish tone, was a “good thing” for the economy.
Orr said the change in the bank’s statement on Thursday to explicitly note that an easing was as likely to be the next move as a tightening in part reflected surprisingly muted inflation pressure.
The RBNZ kept rates at a record low of 1.75 percent, as expected, but the change in the language in the policy statement sent the New Zealand dollar to a six-month low of $0.6900 on Thursday. It stood a touch higher at $0.6969 on Friday morning.
“It’s a good thing for a trading nation,” Orr told Reuters in a telephone interview. He declined to comment on whether the currency, colloquially known as the kiwi, should fall still further.
Orr said he was surprised that the bank had received steady criticism over the past few years for undershooting its inflation target – even as the market itself was pricing in a rate rise.
“The actual inflation pressure that’s coming out … has been very muted,” Orr said. “People’s price-setting behavior seems to be backward looking, not really forward looking.”
He added that markets “finally seemed to listen” to the message that rates would remain on hold for some time.
New Zealand’s annual headline inflation slowed to just 1.1 percent in the first quarter, just within the RBNZ’s target band, but well below the midpoint of 2 percent.
The bank trimmed its inflation forecasts a little to hit the 2 percent mid-point of its target band by the fourth quarter of 2020, a quarter later than previously predicted.
Orr said he supported an increase in government spending and investment when Prime Minister Jacinda Ardern unveils her first national budget next week.
“My single, biggest hope is that government investment does happen, because there is a very positive environment here,” he said. “New Zealand is creaking at the seams in some places, so investment has to happen. Why not do it at a time with low global interest rates?”