RBNZ left the OCR unchanged at 1.75%. While the central bank reiterated its “neutral” monetary policy stance, the accompanying statement revealed that policymakers have turned slightly more dovish than previous months. The members were concerned about global trade tensions and the resulting financial market volatility. They also acknowledged more spare capacity at home as driven by the weaker than expected first quarter GDP growth. The members are ready to leave the policy rate at the current low level and get prepared to lower it, when necessary

On the global economic developments, RBNZ forecast that inflation would continue to improve but remain “modest”. This appears more upbeat that May’s reference that global inflationary pressure would “rise” but remain “contained”. However, the additional comments in June that the inflationary outlook “has been tempered slightly by trade tensions in some major economies” and “ongoing volatility in some emerging market economies continues” indicate that the members are cautious about the global developments, especially the US-induced trade tensions.

At home, RBNZ judged that the outlook from May “remains intact”, but that there was “marginally more spare capacity in the economy” than anticipated given the “recent weaker GDP outturn”. It added that the government’s spending impulse is “slightly lower and later than anticipated” and this would pose downside risk to the medium-term outlook. On inflation RBNZ noted that it is still “expected to gradually rise to our 2%, resulting from capacity pressures”. While recent weakness in NZD should help boosting the price level, the members might not necessarily be relieved as the depreciation come at a time when domestic data softened.

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On the monetary policy outlook, the central bank noted that it is “well positioned to manage change in either direction – up or down – as necessary”. This is compared with May’s reference that “the direction of our next move is equally balanced, up or down. Only time and events will tell”. Meanwhile, it noted that the current policy rate would remain unchanged “for now”. When compared with May’s reference that the current level of policy rate would remain for “some time to come”, it appears that the members are determined to keep the rates at low levels for a more extended period of time.


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