WELLINGTON, April 28 (Reuters) - New Zealand's central bank held interest rates steady on Thursday, as expected, and repeated that it would keep them at a record low to aid recovery from the devastating Christchurch earthquake.
Last month, the Reserve Bank of New Zealand (RBNZ) cut the official cash rate (OCR) by 50 basis points to 2.50 percent, matching its record low, to reduce the impact of the Feb. 22 earthquake which crippled the country's second-biggest city.
The RBNZ governor Alan Bollard said the outlook for the domestic economy remained very uncertain, with higher oil prices and elevated local currency dampening economic activity.
'Given the outlook for core inflation and continued economic disruption stemming from earthquakes, the current level of the OCR is likely to remain appropriate for some time,' he said.
The New Zealand dollar fell sharply to $0.8010 from $0.8075 before the rate decision, while interest rate futures
rose by up to 5 points.
Financial markets had priced in no chance of a rate rise, as did a Reuters poll of 18 analysts, with the majority expecting the cash rate to remain on hold until early 2012.
'It is consistent with the message that policy is on hold at least until the end of this year if not early next year,' said Deutsche Bank chief economist Darren Gibbs.
Underlying inflation pressures appear contained, as the first-quarter jump in the annual inflation rate to a 2-1/2-year high was largely driven by a rise in fuel prices and sales tax, giving the central bank plenty of leeway on policy.
Consumer prices rose 0.8 percent in the quarter, 4.5 percent higher than a year ago, with the sales tax increase in October adding around 2 percentage points. See
'Annual inflation is expected to settle comfortably within the target band once these tax increases drop out of the annual rate,' Bollard said.
The RBNZ, which is required to keep annual inflation within a 1-3 percent target band on average over the medium term, has said it will look through this policy-driven spike in prices.
The economy grew 0.2 percent in the December quarter, narrowly avoiding a slip back into recession following a 0.2 percent contraction in the September quarter.
The economy has shown some resilience after the quake, with the housing market and electronic retail card sales -- an indicator for consumer spending -- both improving in March, pointing to some stability after the deadly quake.
Commodity prices at near record levels have also helped the agricultural-based economy, but Bollard said there were headwinds.
'Higher oil prices and the elevated level of the New Zealand dollar are both unwelcome,' Bollard said.
However, consumer confidence was stuck around a two-year low in April, with households remaining cautious and looking to trim debt and contain spending, denting overall demand.
Business confidence seemed to have bottomed out, after plunging following the quake. The latest survey pointed to a possible pick-up in the economy towards the end of the year.
The National Bank of NZ's monthly business outlook in April, released on Wednesday, showed a net 29.5 percent of companies expected their own business to grow in the next 12 months, compared with 1.47 percent optimism level in March. See
The central bank has said growth was expected to be weak through the first half of the year, but activity would gradually build by 2012 as reconstruction gets underway.
The bank did not repeat its March statement that future policy would be guided by data, and the stimulus of low rates will be removed once rebuilding gets underway.
Bollard this month highlighted the inflation danger from rising terms of trade, but said its focus was the medium term impact.
Market pricing implies that the cash rate will rise 61 bps over the next 12 months, up from 42 bps earlier this month .
(Reporting by Mantik Kusjanto) Keywords: NEWZEALAND ECONOMY/RATES (Mantik.Kusjanto@thomsonreuters.com)(+64 4 471 4234)(Reuters Messaging: mantik.kusjanto.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
Last month, the Reserve Bank of New Zealand (RBNZ) cut the official cash rate (OCR) by 50 basis points to 2.50 percent, matching its record low, to reduce the impact of the Feb. 22 earthquake which crippled the country's second-biggest city.
The RBNZ governor Alan Bollard said the outlook for the domestic economy remained very uncertain, with higher oil prices and elevated local currency dampening economic activity.
'Given the outlook for core inflation and continued economic disruption stemming from earthquakes, the current level of the OCR is likely to remain appropriate for some time,' he said.
The New Zealand dollar fell sharply to $0.8010 from $0.8075 before the rate decision, while interest rate futures
rose by up to 5 points.
Financial markets had priced in no chance of a rate rise, as did a Reuters poll of 18 analysts, with the majority expecting the cash rate to remain on hold until early 2012.
'It is consistent with the message that policy is on hold at least until the end of this year if not early next year,' said Deutsche Bank chief economist Darren Gibbs.
Underlying inflation pressures appear contained, as the first-quarter jump in the annual inflation rate to a 2-1/2-year high was largely driven by a rise in fuel prices and sales tax, giving the central bank plenty of leeway on policy.
Consumer prices rose 0.8 percent in the quarter, 4.5 percent higher than a year ago, with the sales tax increase in October adding around 2 percentage points. See
'Annual inflation is expected to settle comfortably within the target band once these tax increases drop out of the annual rate,' Bollard said.
The RBNZ, which is required to keep annual inflation within a 1-3 percent target band on average over the medium term, has said it will look through this policy-driven spike in prices.
The economy grew 0.2 percent in the December quarter, narrowly avoiding a slip back into recession following a 0.2 percent contraction in the September quarter.
The economy has shown some resilience after the quake, with the housing market and electronic retail card sales -- an indicator for consumer spending -- both improving in March, pointing to some stability after the deadly quake.
Commodity prices at near record levels have also helped the agricultural-based economy, but Bollard said there were headwinds.
'Higher oil prices and the elevated level of the New Zealand dollar are both unwelcome,' Bollard said.
However, consumer confidence was stuck around a two-year low in April, with households remaining cautious and looking to trim debt and contain spending, denting overall demand.
Business confidence seemed to have bottomed out, after plunging following the quake. The latest survey pointed to a possible pick-up in the economy towards the end of the year.
The National Bank of NZ's monthly business outlook in April, released on Wednesday, showed a net 29.5 percent of companies expected their own business to grow in the next 12 months, compared with 1.47 percent optimism level in March. See
The central bank has said growth was expected to be weak through the first half of the year, but activity would gradually build by 2012 as reconstruction gets underway.
The bank did not repeat its March statement that future policy would be guided by data, and the stimulus of low rates will be removed once rebuilding gets underway.
Bollard this month highlighted the inflation danger from rising terms of trade, but said its focus was the medium term impact.
Market pricing implies that the cash rate will rise 61 bps over the next 12 months, up from 42 bps earlier this month .
(Reporting by Mantik Kusjanto) Keywords: NEWZEALAND ECONOMY/RATES (Mantik.Kusjanto@thomsonreuters.com)(+64 4 471 4234)(Reuters Messaging: mantik.kusjanto.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.