RBNZ seen keeping the OCR unchanged at 1.75 pct, to retain a cautious approach: ANZ Research

The Reserve Bank of New Zealand (RBNZ) is expected to leave the Overnight Cash Rate (OCR) unchanged at 1.75 percent at its monetary policy meeting, scheduled to be held next Thursday. This is the first Monetary Policy Statement with Adrian Orr as Governor and will be watched closely for any hints that the RBNZ’s views and approach to monetary policy are changing, according to the latest report from ANZ Research.

This Monetary Policy Statement will also be the first under the new Policy Targets Agreement, signed between the new Governor and the Minister of Finance. The RBNZ is now tasked with contributing to supporting “maximum sustainable employment” in the context of its medium-term inflation target – a stepping stone towards a true dual mandate.

Further, the new Governor will no doubt bring new perspectives to the table, but the RBNZ makes its decisions via a committee, which is soon to be formally legislated. A committee structure means that accountability for – and influence on – the decision is shared. Recent interviews have indicated that the new Governor intends to provide more open communication, so the press conference should provide interesting colour on the RBNZ’s assessment and perception of risks going forward.   

"We expect they will continue to indicate modest OCR tightening in the future – but far enough ahead that they can alter their strategy as conditions change. The RBNZ will remain cautious until it sees a definitive broadening in inflationary pressures, with the OCR to remain on hold for some time yet. We continue to pencil in August 2019 for the first increase," the report added.

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