27 Sep 2018

Reserve Bank holds key interest rate at 1.75%

9:54 am on 27 September 2018

The Reserve Bank has kept the Official Cash Rate unchanged at 1.75 percent, as expected, and reaffirmed it's likely to be on hold for the forseeable future.

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Reserve Bank governor Adrian Orr Photo: NZ Super Fund

The OCR has been at a record low 1.75 percent since late 2016.

Reserve Bank (RBNZ) governor Adrian Orr said employment was near sustainable levels, but growth had been better than expected and should pick up over the rest of this year and into next year.

However, he said there were challenges at home and abroad that justified keeping rates unchanged.

"We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation."

"We expect to keep the OCR at this level through 2019 and into 2020. The direction of our next OCR move could be up or down."

Mr Orr noted core inflation pressures were picking up, and headed towards the central bank's 2 percent target.

"Higher fuel prices are likely to boost inflation in the near term, but we will look through this volatility as appropriate."

He said ongoing spending and investment, by both households and government, would support economic growth.

Mr Orr said there were risks, especially overseas where trade tensions might affect world growth.

ASB's chief economist Nick Tuffley said the statement was generally neutral.

"We continue to expect the RBNZ will keep the OCR on hold, and eventually lift the OCR in early 2020. However, the risks through to mid-2019 are tilted to a lower OCR due to low levels of business confidence."

Financial markets were largely unmoved by the RBNZ statement, which was in line with expectations.

Earlier, the US Federal Reserve raised its benchmark rate by a quarter of a percentage point to a range between 2 percent and 2.25 percent, and signalled one more rise this year, and further increases over the next year.