Economy

Reserve Bank leaves Official Cash Rate unchanged at one per cent

Reserve Bank leaves Official Cash Rate unchanged at one per cent”

The last time the OCR was changed was in August, when it was cut by 0.5 percentage points to one per cent - a record low. The NZD presents a quite respectable 1% yield - considering the average low rate environment - thereby preserving some carry appeal, which is set to fade for its closest peer, the Aussie dollar (we expect a Reserve Bank of Australia cut).

Analysts at TD Securities (TDS) offer their afterthoughts on Wednesday's Reserve Bank of New Zealand's (RBNZ) hawkish monetary policy decision. The annual inflation rate rose to 1.9% in the fourth quarter, beating expectations and closing in on the midpoint of the RBNZ's 1-3% target range.

The central bank said economic growth is expected to accelerate over the second half of 2020 driven by monetary and fiscal stimulus, and the high terms of trade. The government has also announced a NZ$12 billion ($7.7 billion) infrastructure investment plan that may start to boost growth later this year. There are also indications household spending growth will increase. The widespread travel ban may make it worse for New Zealand's economic growth, Prime Minister Jacinda Ardern commented.

The Reserve Bank also touched on the novel coronavirus outbreak now sending jitters around global markets.

Global anxiety over the coronavirus strain showed signs of easing as the infection rate appeared to ease and Chinese factories began to return to work.

ASB economists said viral outbreaks typically have a temporary impact on growth, and they now assume a short-term hit to New Zealand GDP that won't necessitate a policy response. Therefore, the New Zealand currency will be reacting mostly to outside news, especially those about the virus outbreak in China.

"Nevertheless, some sectors are being significantly affected".

"This is a highly fluid situation and estimated impacts are extremely uncertain", said Sharon Zollner, chief economist at ANZ Bank New Zealand in Auckland.



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