2 Sep 2015

Warning over interest rates review cut

3:08 pm on 2 September 2015

A shift by the Reserve Bank to reduce the number of its interest rate reviews from next year has sparked a warning from at least one economic researcher.

Reserve Bank of New Zealand

The Reserve Bank of New Zealand's headquarters in Wellington Photo: RNZ / Alexander Robertson

From July 2016, the central bank will produce monetary policy statements in February, May, August and November, and hold Official Cash Rate (OCR) reviews on the fourth Thursday of March, June and September.

That means seven reviews instead of the usual eight, with January to be omitted.

The Reserve Bank said the change would align the bank's decision-making with the timing of inflation and GDP figures.

But the New Zealand Institute for Economic Research said it was a mistake.

Its principle economist, Kirdan Lees, said the gap between the November and February reviews puts the Reserve Bank at risk of playing catch-up.

"By reducing the number of meetings that you have, you really lose one option to actually change interest rates each year."

"That means that you might actually sort of fall behind the run-rate of what's required for monetary policy to match what needs to be done to keep the economy going," he said.

The OCR is the Reserve Bank's main tool in its efforts to meet inflation targets, and directly affects the cost of borrowing money in New Zealand - including for mortgages.

The central bank is required to set out its plans for meeting targets, and chart its progress, in regular monetary policy statements.