May 8, 2018 / 1:25 AM / a year ago

New Zealand central bank governor Orr in spotlight as rates set to stay on hold

WELLINGTON (Reuters) - New Zealand’s central bank is all but certain to keep rates on hold this week and signal no imminent tightening at a policy meeting that will be closely watched as the first with both a new governor and an employment goal mandate.

A security guard stands in the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, July 3, 2017. REUTERS/David Gray

All 16 economists polled by Reuters expect the Reserve Bank of New Zealand (RBNZ) to hold rates at 1.75 percent when the bank on Thursday delivers its first monetary policy statement under Governor Adrian Orr, who has inherited stubbornly low inflation.

And of the 15 economists who made projections beyond this week’s policy announcement, 14 forecast the bank would keep rates steady until the end of the year. [NZ/POLL]

New Zealand’s annual headline inflation slowed to just 1.1 percent in the first quarter, prompting Orr to vow his “dogged determination” to ensure it reached 2 percent - the midpoint of the central bank’s target band.

Tackling weak prices, along with a slide in first-quarter unemployment to an eight-year low of 4.4 percent, means that the RBNZ’s new employment goal is likely to be pushed to the periphery when setting monetary policy.

Some economists expect no change in interest rates until well into 2019.

“Those looking for a radical shift in the stance of the RBNZ thanks to the installation of a new governor and a new Policy Targets Agreement (PTA) will be disappointed,” BNZ chief economist Stephen Toplis said in a note.

Still, both the monetary policy statement and Orr’s subsequent press conference will be scrutinised for any changes at the margins that might signal his future leanings.

“It won’t be just about the change in the inflation outlook, but also any impact from the change in governor and change in PTA,” ASB economists said in a research note. “Interest is likely to be focused toward how the RBNZ interprets its new target as well as how the RBNZ weighs meeting its dual targets.”


Orr signed the new PTA with the centre-left government when he took the job in March, adding “maximising sustainable employment” to the central bank’s goals alongside inflation targeting, which economists said would likely mean future monetary policy statements would delve more deeply into labour market conditions.

In a series of interviews with local media in recent weeks, Orr has the discussed everything from the risk of climate change to oversight of the banking sector, suggesting a higher level of public engagement than his predecessors.

BNZ’s Toplis said that is likely to be a superficial departure.

“Orr is open, articulate and sometimes very humorous but he’s still, at his core, a relatively mainstream economist who has already committed himself to price stability,” he said.

New Zealand’s economic growth slowed to an annual 2.9 percent in the fourth quarter of 2017, from 3 percent the previous quarter, as bad weather hampered production of dairy, the country’s main goods export.

Reporting by Charlotte Greenfield. Editing by Jane Wardell and Shri Navaratnam

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