14 Apr 2021

Reserve Bank holds official cash rate at record low 0.25 percent

3:15 pm on 14 April 2021

The Reserve Bank has held the official cash rate (OCR) at a record low 0.25 percent, as expected, and reaffirmed easy monetary policies to support the economy through the pandemic.

Reserve Bank governor Adrian Orr.

Reserve Bank Governor Adrian Orr Photo: RNZ / Dom Thomas

It said the economy slowed over summer but had continued to improve, and still faced an uncertain and uneven outlook.

"Economic uncertainty remains elevated and divergences in economic growth both within and between countries are significant," the Monetary Policy Committee (MPC) said in a statement.

"Short-term data continues to be highly variable as a result of the economic impacts of Covid-19. "

It said the central bank was still short of reaching its targets of sustainable employment and inflation around 2 percent.

"Meeting these requirements will necessitate considerable time and patience. The committee agreed that it was prepared to lower the OCR if required."

It reaffirmed the $100 billion bond buying programme, which aims to keep interest rates low, and the funding for lending programme (FLP) which offers low-interest finance to banks for on-lending to businesses and households.

However, it said stronger inflation pressures that have been recorded in business surveys were being driven in part by temporary factors such as supply chain disruptions and higher oil prices, which they would discount.

As part of its new instructions from the government, the MPC said it had looked at the effect of its policies on the housing market, and accepted they were a factor driving house prices higher.

"Other factors are also influencing house prices including: the impact of low global interest rates on all asset prices, constrained housing supply and infrastructure, land use regulations, tax policies and the broader recovery in aggregate demand."

It repeated the RBNZ's long-held view that monetary policy is targeted at inflation and employment.

Financial markets were little moved by the statement.

ASB chief economist Nick Tuffley said the central bank statement had stuck to the expected script.

"We continue to expect the RBNZ will remain on hold until August 2022, with the balance of probabilities tilted to a later start than that."

Some economists are forecasting the OCR will stay on hold through to 2025.

Read the RBNZ's full monetary statement here.

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