Reserve Bank of New Zealand keeps Official Cash Rate at 1 percent

Reserve Bank Governor Adrian Orr

Reserve Bank Governor Adrian Orr

The Reserve Bank has a neutral bias for the OCR in 2020 which now includes a pencilled in hike in 2021.

The repricing of rate expectations has inevitably triggered a jump in the New Zealand dollar, which had been among the major victims of the virus-related risk-off environment.

The Pound New Zealand Dollar (GBP/NZD) exchange rate held steady this morning, with the pairing now trading around NZ$2.01 as the risk-sensitive "Kiwi" continues to be held back by rising concerns over China's coronavirus outbreak.

This suggests that, once market sentiment stabilises, and barring a much harder than expected impact on the New Zealand economy (which could warrant an RBNZ cut) the NZD will likely see a more sustained recovery.

"Employment is at or slightly above its maximum sustainable level while consumer price inflation is close to the two per cent mid-point of our target range". Monetary policy has time to adjust if needed as more information becomes available.

The Reserve Bank said there was a risk that the impact will be larger and more persistent.

He said the impact of the coronavirus has raised uncertainty at home and overseas, but is expected to be short lived.

The Reserve Bank are confident economic growth will accelerate over the second half of 2020 and that the infrastructure investment from the government will help fuel that growth. The widespread travel ban may make it worse for New Zealand's economic growth, Prime Minister Jacinda Ardern commented.

A return to positive growth territory for the manufacturing sector would limit worries over the outlook of the New Zealand economy, encouraging hopes of a stronger first quarter.

But not before a sluggish start to the new year has been overcome. The bank will also publish new forecasts for growth, inflation and the cash rate. House-price growth is gathering pace, business confidence is beginning to recover from a slump and unemployment unexpectedly fell to 4%, matching a decade-low, amid signs of wage pressures.

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