Orr: Economic risks led to NZ’s shift to dovish stance

  • Business
  • Wednesday, 17 Apr 2019

WELLINGTON: New Zealand’s central bank governor Adrian Orr said an easing bias on interest rates will remain in place for now and that softer global economic conditions had contributed to the bank’s recent shift to a dovish policy tone.

At the last policy review in March, the Reserve Bank of New Zealand (RBNZ) held the cash rate steady at 1.75%, but stunned markets by clearly stating that the next move in rates would likely be a cut.

“It remains, but it remains to be challenged by the data that we have seen,” Orr told Reuters in an interview when asked if the central bank is maintaining its easing bias.

Orr, a central bank veteran, took the helm at the RBNZ in March last year. He worked in the RBNZ’s economics department between 1997 and 2000, and later served as deputy governor for four years before joining the New Zealand Super Fund in 2007.

When he took charge 12 months ago, Orr said the central point for interest rates was 1.75%, but the broad centre of risk for the next move was to the upside.

On Tuesday, reflecting on the shifting economic conditions, the governor said “it’s been interesting watching that edge move away from the central to the downside.”

“We have no monopoly on wisdom....we were simply observing how everyone else were going and changing their positions. Some had biases up to neutral, some had neutral to down.”

He said the US Federal Reserve was getting more nervous about the growth outlook, China’s economy was giving mixed signals while uncertainty dogged European policymakers and Britain continued to grapple with its plans to exit from the European Union.

“So the answer is, it got softer,” he said.

Orr said the RBNZ is still assessing data and broad economic conditions for the next interest rate decision on May 8, which would be the first to be delivered by a new monetary policy committee, rather than the governor alone.

“But it’s a good position to be in. If the next move is really difficult or uncertain, then it means you are in not too bad a position to begin with. If the next move is screamingly obvious then what are you doing here?”

Orr also said the New Zealand dollar is trading around a “happy space,” suggesting the central bank has no immediate concerns about the currency’s current value.

The kiwi dollar eased back slightly to US$0.6757, from a top of US$0.6782 on Monday, mainly driven by a faltering Australian dollar.

New Zealand’s inflation edged up 0.1% in the fourth quarter on higher service costs, though the annual rate of 1.9% was still below the RBNZ’s target midpoint at 2%. Economic growth in the last quarter of 2018 rebounded, expanding 0.6% though still running below potential.

Speaking about inflation, Orr said any undershooting in the consumer price index data due to be released today has already been factored in.

“A lot of it has been factored in because really what you’re looking at is a long period of being surprised to the downside of CPI inflation so we’ve kind of re-centred and thought about that...,” he said. — Reuters


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