The Reserve Bank has kept the Official Cash Rate (OCR) unchanged at 1.75 per cent.
The Reserve Bank Governor Grant Spencer said annual consumer price index inflation was 1.9 per cent in September, and was projected to remain around 2 percent over the long term.
Gross Domestic Product (GDP) and employment figures had grown in the last quarter with GDP growth expected to strengthen, he said.
However, the outlook for housing and construction was weaker.
"House price inflation has moderated due to loan-to-value ratio restrictions, affordability constraints, reduced foreign demand, and a tightening in credit conditions. Low house price inflation is expected to continue, reinforced by new government policies on housing," he said.
As part of its outlook, the bank has included very early estimates of the impact of some new government policies.
Due to capacity constraints in construction, around half of the KiwiBuild programme would be offset by a reduction in private sector activity, it said.
It expected any effects from increasing the minimum were likely to be modest.
The Bank has incorporated preliminary estimates of the impact of new government policies in four areas: new government spending; the KiwiBuild programme; tighter visa requirements; and increases in the minimum wage. The impact of these policies remains very uncertain.
On Tuesday, Finance Minister Grant Robertson and Mr Spencer signed the Policy Targets Agreement which keeps the long-standing inflation target of 1 to 3 percent. The bank can influence the rate of inflation by adjusting the OCR, which then influences bank interest rates.
As part of its coalition agreement with New Zealand First, Labour will also review the Reserve Bank Act to give it the mandate to maximise employment, as well as maintain price stability. It will also have a committee decide monetary policy, rather than just the governor.
The cash rate has stayed at 1.75 per cent since this time last year.
- Michael Cropp
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