The Monetary Policy Committee of the Reserve Bank of New Zealand on Wednesday decided to keep its Official Cash Rate unchanged at the record low of 0.25 percent, in line with expectations.
It was the eighth straight meeting with no change after the RBNZ trimmed the OCR by 75 basis points to the current mark on March 16, 2020.
The Committee also will keep the Large Scale Asset Purchase (LSAP) Program of up to NZ$100 billion and the Funding for Lending Program (FLP) operation unchanged.
Global economic activity has increased, although this lift in activity has been uneven both between and within countries.
The initiation of global COVID-19 vaccination programs is positive for future health and economic activity. The Committee agreed, however, that there remains a significant period before widespread immunity is achieved. In the meantime, economic uncertainty will remain heightened as international border restrictions continue.
Economic activity in New Zealand picked up over recent months, in line with the easing of health-related social restrictions. Households and businesses also benefitted from significant fiscal and monetary policy support, bolstering their cash-flow and spending. International prices for New Zealand’s exports also supported export incomes, although the New Zealand dollar exchange rate has offset some of this support.
Some temporary factors were currently supporting consumer price inflation and employment. These one-off factors include higher oil prices, supply disruptions due to trade constraints, the recent suite of supportive fiscal stimulus, and a spending catch-up following the easing of social restrictions.
The economic outlook ahead remains highly uncertain, determined in large part by any future health-related social restrictions. This ongoing uncertainty is expected to constrain business investment and household spending growth. The Committee agreed that inflation and employment would likely remain below its remit targets over the medium term in the absence of prolonged monetary stimulus.
The Committee agreed to maintain its current stimulatory monetary settings until it is confident that consumer price inflation will be sustained at the 2 percent per annum target midpoint, and that employment is at or above its maximum sustainable level. Meeting these requirements will necessitate considerable time and patience.
The Committee agreed that it remains prepared to provide additional monetary stimulus if necessary and noted that the operational work to enable the OCR to be taken negative if required is now completed.
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