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Summary
- The RBNZ announces its second monetary policy statement for 2021.
- Keeps OCR rates unchanged at 0.25%
- Says even though the economic recovery better-than-expected, it is uneven and uncertain.
In line with the expectations, the Reserve Bank of New Zealand (RBNZ) decided to keep the current monetary support with OCR unchanged at 0.25%. Even the Large-Scale Asset Purchase and Funding for Lending remains the same. The Monetary Policy Committee (MPC) said that even though the global economic outlook was looking for support from the New Zealand government through its fiscal and monetary policies, the economic recovery was uneven and uncertain. In New Zealand also, the economic recovery has been uneven with some sectors and regions still under the impact of the COVID-19 pandemic.
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It said that while the construction industry was strong, unemployment numbers were also better than other countries. It further said that as fiscal stimulus continued, sectors like travel and tourism were still weak. Huge revenue losses suffered by this industry has been partially offset by the opening of the Trans-Tasman bubble, but still not up to the expected levels. Commenting on the inflation numbers, MPC said that the rising prices for businesses and consumers were due to disruptions in the supply chain, higher oil prices, and disrupted shipping arrangements. The higher prices are temporary and likely to cool down over the year, it said.
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According to the MPC, the bank’s medium-term outlook remains the same as the February one. It expects the medium-term inflation and employments to be below target. With regard to housing crisis, the MPC agrees that the low-interest rate regime has led to an increase in house prices, but the current policies to balance demand and supply announced by the government are likely to show results soon.The RBNZ Committee said that it would maintain low interest rates till the consumer price, inflation, and employment remained at the target level for some time. Very clearly, the MPC stated that those conditions would continue till the targets for inflation and employment were sustained at the remit levels.
In view of the rising inflation numbers, economists had been worrying that this might lead to a hawkish monetary stance. The expectations were that with all cues pointing towards an economic recovery and the demand rising, the RBNZ might lift the Official Cash Rate.
