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RBNZ says uncertainty, infrequent price data complicate forecasting
May 15, 2017 / 5:24 AM / in 5 months

RBNZ says uncertainty, infrequent price data complicate forecasting

Two people walk towards the entrance of the Reserve Bank of New Zealand located in the New Zealand capital city of Wellington, March 22, 2016. REUTERS/Rebecca Howard/File Photo

WELLINGTON (Reuters) - New Zealand’s central bank on Monday said that a world of “radical uncertainty” has made forecasting the trajectory of monetary policy difficult, and said more frequent inflation data would make its job easier.

The comments come at a time of increasingly divergent views by the central bank, which has signaled it could keep the official cash rate (OCR) at record lows for years, and economists and investors who point to stronger domestic economic data as warranting a more hawkish tone.

The Reserve Bank of New Zealand (RBNZ) last week defied market expectations and retained its neutral stance while holding the OCR at 1.75 percent.

Almost half of the 16 economists polled by Reuters before the rates decision expected the bank to start tightening in mid-2018. [NZ/POLL]

The RBNZ’s OCR projection implies the next move will be a rate hike in late 2019.

“Today, in May 2017, the most likely scenario is for the OCR to remain stable for some time, although uncertainty remains high,” Reserve Bank of New Zealand assistant governor John McDermott in a speech on Monday in Christchurch.

McDermott defended the bank’s approach as flexible and said it was quick to move when any new information came to light.

However, he added that monthly consumer price index (CPI) data as found in most advanced economies would greatly improve the central bank’s forecasting ability. New Zealand’s CPI is released quarterly.

“One significant limiting factor to forecast improvement is data: macroeconomic statistics have not fundamentally changed over the 30 years we have been using inflation targeting,” McDermott said.

“For instance, New Zealand is one of only two advanced countries that use a quarterly consumer price index rather than monthly. This is likely to be a fruitful avenue for future improvement that would greatly improve the Bank’s forecasting ability.”

Hours before McDermott’s speech, another data release highlighted the divergence between a booming economy and record low rates. First quarter retail sales, a key contributor to gross domestic product, grew a rapid 1.5 percent, well above the 0.9 percent expected by analysts.

Reporting by Charlotte Greenfield; Editing by Richard Borsuk

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