Article Highlights

  • RBNZ keeps interest rates at record lows
  • Policy to remain accommodative for "considerable period"
  • RBNZ says lower NZ dollar would help rebalance growth
  • RBNZ shrugs off weaker-than-expected Q1 growth
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New Zealand’s central bank on Thursday played down the recent rise in the New Zealand dollar and shrugged off weaker economic growth at the start of the year, as it kept interest rates steady at record lows for a fourth consecutive rate review.

Reserve Bank Governor Graeme Wheeler said a 3 percent rise in the currency since May was partly due to higher export prices and that a lower currency would help rebalance the growth outlook.

Growth prospects were “positive” thanks to low interest rates and changes in the 2017 Budget that would boost family income and infrastructure spending.

The central bank reiterated rates policy would be accommodative for a “considerable period,” with first quarter growth data reinforcing its view that it is too early to rein in growth. New Zealand has been among the best-performing advanced economies in recent years.

“There (are) a few tweaks in the language in regards to the currency and acknowledging the budget, but, look, the broad message is unchanged – the Reserve Bank is cautious, it’s watchful, but it’s neutral,” said Philip Borkin, senior economist at ANZ.

“It looks like the hurdle for them to shift from that neutral stance in either direction remains very high.”

None of the 26 economists polled by Reuters expected the RBNZ to move this week, though four thought a hike was possible as early as the first quarter of 2018.

The NZ dollar jumped towards four-month highs to $0.7280 from around $0.7211 before the statement. It retraced to around $0.7247 by 0148 GMT.

“Potentially the market was looking for the Reserve Bank to do more to talk down the currency,” said Jane Turner, senior economist at ASB Bank.


Rates would stay accommodative for a considerable period, while “numerous uncertainties” remained and policy may have to adjust accordingly, Wheeler said, sticking with the language used in central bank statements from February, March and May.

However, he dropped a reference in May’s release that developments since the last monetary policy statement had been neutral for policy, which some economists at the time considered to be an “aggressively neutral” stance.

The Reserve Bank’s neutral stance was the source of recent controversy between the RBNZ and the Bank of New Zealand, with Wheeler complaining in writing to BNZ that one of its research notes questioned the RBNZ’s integrity.

“There was a chance that the Reserve Bank could reassert the possibility of cuts as well as hikes. They didn’t, so we’ve seen a little relief rally in the New Zealand dollar,” said Michael Gordon, acting chief economist at Westpac.

For the text of the statement click on. (Reporting by Ana Nicolaci da Costa and Charlotte Greenfield, additional Reporting by Swati Pandey and Wayne Cole in Sydney; editing by Eric Meijer)