27 Mar 2019

Reserve Bank keeps interest rates unchanged

2:51 pm on 27 March 2019

The Reserve Bank (RBNZ) has held its benchmark interest rate unchanged, as expected, but signalled rising risks may prompt a rate cut.

Reserve Bank Governor Adrian Orr

Reserve Bank Governor Adrian Orr Photo: RNZ / Jane Patterson

The official cash rate (OCR) was held at a record low 1.75 percent, where it has been since late 2016.

Governor Adrian Orr said the economy has been going through a soft patch with the housing market slowing and business confidence and investment weakening.

He said interest rates can stay unchanged for the time but risks were rising.

"Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next OCR move is down."

The RBNZ had previously said the risks to the economy were balanced and the next move could be either up or down, and that it had expected to keep the OCR steady through this year and and 2020.

Mr Orr said the risk of a more pronounced global downturn had increased and low business sentiment was hurting domestic spending.

"On the upside, inflation could rise faster if firms pass on cost increases to prices to a greater extent," he said.

"We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation. "

The New Zealand dollar, which has been sitting around three month highs recently, fell nearly a full cent against the US dollar after the rate cut threat.

An economist said the central bank had spelt out the risks clearly and if the signs of weakness increased, an interest rate cut could be sooner rather than later.

"If the economy doesn't start showing greater signs of life soon then the RBNZ could conceivably cut as early as May," ASB Bank chief economist Nick Tuffley said.

He said business confidence surveys will become more important over the next few months and even if the RBNZ was to stay on hold, there was no prospect of a rate increase for the next couple of years.