"There looks to be little need for Reserve Bank to substantively tweak its outlook for interest rates," says new ASB report
ASB expects a “neutral assessment” from RBNZ regarding the outlook for the Official Cash Rate (OCR), according to a new report.
The bank states that the risks are slightly more skewed to interest rates remaining on hold for longer, but aside from that, there looks to be little need for RBNZ to change its tune on interest rate outlook.
“We expect a similar and to-the-point message from the RBNZ over the outlook for the OCR: “the direction of our next move is equally balanced, up or down. Only time and events will tell,” ASB stated.
Nonetheless, the bank says the risks are slightly more skewed towards lower growth, with interest rates remaining on hold for longer. A healthy global growth backdrop is at an increased risk of being undermined by increasing trade protectionism, though this is unlikely to have a significant impact on the New Zealand economy.
ASB says other factors such as pessimistic business confidence and uncertainties around the ongoing Mycoplasma Bovis eradication efforts may also account for slow growth, and the bank expects these to be referenced in RBNZ’s June statement. ASB’s report marked business confidence in particular as a “key risk” to an otherwise robust economy, with confidence having edged downwards since late 2017.
The OCR has remained at 1.75% since November 2016, with RBNZ stating in May that it expects to “keep the OCR at this expansionary level for a considerable period of time.”
“This is the best contribution we can make, at this moment, to maximising sustainable employment and maintaining low and stable inflation,” Reserve Bank governor Adrian Orr stated.
