RBNZ plots steady course: economists react

The Reserve Bank has kept the official cash rate on hold but warned "prolonged monetary support" is needed amid the Covid crisis. Here's how economists responded.

Wednesday, February 24th 2021, 2:30PM

Adrian Orr, RBNZ

The RBNZ, as expected, kept the central bank rate at 0.25%, and gave no indication that rates would change in the medium term.

It said the Monetary Policy Committee "agreed that inflation and employment would likely remain below its remit targets over the medium term in the absence of prolonged monetary stimulus".

The central bank is however, "prepared to lower the OCR to provide additional stimulus if required".

The Reserve Bank's bond-buying programme has been kept at $100 billion, with no changes to the Funding for Lending Programme.

The MPC agreed it would rather keep current settings "until it had confidence that it is sustainably achieving the consumer price inflation and employment objectives".

ASB chief economist Nick Tuffley said the RBNZ announcement was a reminder that the Covid crisis had not yet passed.

"The RBNZ has signalled that NZ will need monetary support for a considerable time, an attempt to hose down some of the exuberance that has gripped global financial markets as vaccine roll-outs brought optimism that the pandemic will soon be put behind us," Tuffley said.

"The key messages are that the environment remains highly uncertain, and that the medium-term objectives of the RNBZ will not be met without prolonged monetary stimulus."

Jarrod Kerr, chief economist at Kiwibank, noted the Reserve Bank's statement did not include negative rates as "under consideration" this time around.

"Talks on negative rates have been abandoned. As they should. And thoughts of rate hikes are developing. The cash rate is likely to remain unchanged well into next year," he said.

"The RBNZ has rerun their numbers, and they’re much more positive. The Kiwi economy has proven to be more resilient. And the record amounts of monetary and fiscal stimulus sloshing through the economy is supporting growth," Kerr added.

Tags: OCR RBNZ Reserve Bank