New Zealand’s central bank left its monetary policy unchanged on Wednesday, as widely expected, and agreed to cut its interest rates further if required as the economic outlook remains highly uncertain.
The Monetary Policy Committee of the Reserve Bank of New Zealand decided to keep the Official Cash Rate at 0.25 percent and the Large Scale Asset Purchase at NZ$100 billion. The Funding for Lending programmes were also kept unchanged.
The committee agreed to retain its current expansionary monetary setting until consumer price inflation will be sustained at the 2 percent target, and that employment is at or above its maximum sustainable level.
The MPC said it is prepared to lower the benchmark rate if required.
The committee observed that short-term data continues to be highly variable as a result of the economic impacts of COVID-19.
Over the medium-term, the outlook remains highly uncertain, determined in large part by both health-related restrictions, and business and consumer confidence, the MPC said.
Although disruptions to global supply chains and higher oil prices are leading to specific near-term price pressures, the medium-term inflation and employment would likely remain below its target in the absence of prolonged monetary stimulus.
“If the economy continues to improve as we anticipate, we suspect the Bank may end its purchases altogether around the end of this year” Ben Udy, an economist at Capital Economics, said. The economist expects the central bank to raise rates towards the end of next year.
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