24 Feb 2021

Reserve Bank holds OCR at 0.25 percent

2:58 pm on 24 February 2021

The Reserve Bank has held the official cash rate (OCR) at a record low 0.25 percent, as expected, and repeated it will press on with stimulatory monetary policies to support the economy from the pandemic.

The Reserve Bank of New Zealand

The Reserve Bank of New Zealand Photo: RNZ / Alexander Robertson

The Reserve Bank was expected to keep the official cash rate (OCR) steady.

The OCR has been at 0.25 percent since March 2020 when it was lowered from 1 percent due to the likely impact of the Covid-19 pandemic.

The Bank acknowledged the economy has performed better than expected but said recovery here and around the world was uneven and the outlook uncertain, as it would take time for Covid-19 vaccination programmes to have an effect.

"Economic activity in New Zealand picked up over recent months, in line with the easing of health-related social restrictions. Households and businesses also benefitted from significant fiscal and monetary policy support, bolstering their cash-flow and spending," it said in a statement.

"This ongoing uncertainty is expected to constrain business investment and household spending growth. "

The RBNZ's monetary policy committee said the central bank was still short of reaching its targets of sustainable employment and inflation about 2 percent, and that would mean it would stick with its $100 billion bond buying programme, which aims to keep pressure on interest rates.

It also reaffirmed the recently started funding for lending programme (FLP) which has been pumping cheap money into banks to be on-lent to businesses and households at the same level as the OCR.

The committee also said it was prepared for the possible use of a negative OCR.

"The committee agreed that the risks to the economic outlook are balanced, in large part due to the anticipated prolonged period of monetary stimulus".

The New Zealand dollar gained modestly against the US dollar after the announcement to about 73.65 US cents.

ASB Bank has forecast the Reserve Bank will start lifting the rate as early as August 2022, then to 1.25 percent in 2024. Chief economist Nick Tuffley said the Reserve Bank would not increase rates until New Zealand reopened its borders.

ASB chief economist Nick Tuffley said the RBNZ statement was steady and cautious.

"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."

"We continue to expect the RBNZ will gingerly start lifting the OCR from August 2022."

Kiwibank chief economist Jarrod Kerr said the economy was in a much better position than anticipated six months ago, and the central bank would start to contemplate rate hikes next year.

Read the RBNZ's full monetary policy statement here.

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