November 5, 2018 / 3:12 AM / 13 days ago

NZ central bank to stand pat in final review for 2018, seen on hold near term

WELLINGTON (Reuters) - New Zealand’s central bank is expected to leave interest rates unchanged this week and over the near term, as policy makers wait to see if a recent acceleration in inflation and better-than-expected growth figures are sustainable.

FILE PHOTO - Cranes located on construction sites are seen near high-rise residential apartment buildings in central Auckland, New Zealand, June 25, 2017. REUTERS/David Gray/File Photo

Economists, however, will scour the policy statement on Thursday for any signs the central bank is shifting away from the dovish tilt it adopted in August when it committed to keeping interest rates at record lows through to 2020, due to persistently disappointing growth.

In a Reuters poll, 16 economists unanimously predicted that in its final policy review for the year the Reserve Bank of New Zealand (RBNZ) will hold the official cash rate (OCR) at 1.75 percent, where it has remained since November 2016.

Two economists expect the RBNZ to hike rates in the third quarter of 2019, and four predicted an increase in the final quarter. The rest expect no change in policy for next year.

In its last announcement in September, RBNZ Governor Adrian Orr was not quite as gloomy as at the August meeting, but indicated accommodative monetary policy was still required to fire up inflation.

Analysts say the RBNZ can take some comfort from surprisingly strong second quarter GDP growth. Yet, while inflation in the third quarter also accelerated closer to central bank’s target mid-point of 2.0 percent, some economists described this as a red herring.

“We currently see the OCR (Official Cash Rate) on hold for the foreseeable future,” ANZ chief economist Sharon Zollner said.

“It will be difficult for the economy to accelerate and to sustain stronger inflation over the medium term.”

There are concerns that the economy, like many others around the world, could be hurt by the trade war between the United States and China, which is New Zealand’s biggest trading partner.

Political considerations could be another factor keeping governor Orr cautious.

Prime Minister Jacinda Ardern concluded her first year in office last month with a surprise lead over her rivals in the latest opinion polls, but her supporters are growing impatient with slow reforms and businesses are still wary of Labour Party’s policies.

But economic growth, employment, and inflation numbers have come in higher than the RBNZ’s forecasts in the recent months, giving policy makers some optimism about the outlook as they head into this rate decision.

“We are likely to get an RBNZ Governor who views the world slightly, just slightly, better,” said aid Kiwibank chief economist Jarrod Kerr.

“We expect one hawkish feather to join a headdress of snow white dove feathers.”

Editing by Shri Navaratnam

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