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Reserve Bank holds OCR at record low 0.25%

The Reserve Bank has held the official cash rate (OCR) at a record low 0.25 per cent, as expected, and repeated it will press on with stimulatory monetary policies to support the economy from the pandemic.

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Interest rates won’t be going anywhere anytime soon, but today’s decision comes with a big warning. Source: 1 NEWS

By Gyles Beckford of rnz.co.nz

It acknowledged the economy has performed better than expected but said recovery here and around the world was uneven and the outlook uncertain, as it would take time for Covid-19 vaccination programmes to have an effect.

"Economic activity in New Zealand picked up over recent months, in line with the easing of health-related social restrictions. Households and businesses also benefited from significant fiscal and monetary policy support, bolstering their cash-flow and spending," it said in a statement.

"This ongoing uncertainty is expected to constrain business investment and household spending growth. "

The RBNZ's monetary policy committee said the central bank was still short of reaching its targets of sustainable employment and inflation about 2 per cent, and that would mean it would stick with its $100 billion bond buying programme, which aims to keep pressure on interest rates.

It also reaffirmed the recently started funding for lending programme (FLP) which has been pumping cheap money into banks to be on-lent to businesses and households at the same level as the OCR.

The committee also said it was prepared for the possible use of a negative OCR.

"The committee agreed that the risks to the economic outlook are balanced, in large part due to the anticipated prolonged period of monetary stimulus".

The New Zealand dollar gained modestly against the US dollar after the announcement to about 73.65 US cents.

ASB chief economist Nick Tuffley said the statement was steady and cautious.

"The key messages are that the environment remains highly uncertain, and that the medium-term objectives of the RNBZ will not be met without prolonged monetary stimulus.

"We continue to expect the RBNZ will gingerly start lifting the OCR from August 2022."

Read the RBNZ's full monetary policy statement here.