Growth outlook overshadows OCR call

Thursday 28 September 2017

New Zealand’s lower economic growth was acknowledged by the Reserve Bank in its OCR statement today – which means there's a chance their next call could be more doveish.

The Reserve Bank left the OCR unchanged at its record low of 1.75% this morning.

It also maintained a firmly neutral stance in its monetary policy guidance, indicating that it will remain accommodative for some time.

This came as no surprise to anyone, but left economists looking to Reserve Bank acting governor Grant Spencer’s comments on growth for hints of future direction.

Westpac chief economist Dominick Stephens said the bottom line guidance was a repeat of the guidance that has been used more-or-less unchanged all year – which was unsurprising.

“The Reserve Bank was never going to strike a bold new tone at this OCR review, given the pall of uncertainty that has been cast by the election.”

However, while the Reserve Bank upgraded its take on global growth, it counterbalanced this with hints it has downgraded its GDP growth forecasts, he said.

“The acknowledgement of a lower growth outlook was an important development that could hint in the direction of a more dovish November Monetary Policy Statement.”

ASB chief economist Nick Tuffley agreed that the growth comments hinted at a little more caution on the part of the Reserve Bank.

Construction’s recent weakness was noted, and GDP growth was noted as being expected to maintain its current pace, he said.

“We didn’t expect much change in wording in the statement, and there wasn’t.  The key message is the Reserve Bank has maintained its neutral stance.

“There is a hint the growth outlook may have been tweaked down very slightly.

“But the election outcome is likely to bring a greater degree of stimulus than the Reserve Bank’s forecasts will be currently factoring in.”

ASB expects the OCR to remain on hold until February 2019, he added.

For ANZ economists, today’s OCR statement was a near carbon copy of the August statement and indicated that the OCR is likely to remain firmly on hold for an extended period.

They said that while there was the odd, subtle tweak in the language used in the statement, if there was any conjecture it was in its comments on the growth outlook.

“Overall, we are again left with the impression that the Reserve Bank is quite comfortable on the side-lines. The hurdle for a shift in its policy stance looks high.

“We retain a bias that the next move in the OCR will be upwards. However, it is hardly a conviction view and we are sympathetic to the idea that policy is on an extended siesta – if not an indefinite one.”

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