Reserve Bank sees risks equally balanced - RePress

Breaking

RePress

News and current affairs blog of a Freelance Journalist

LinkWithin

test banner

Post Top Ad

Responsive Ads Here

Post Top Ad

Responsive Ads Here

Sunday, March 5

Reserve Bank sees risks equally balanced

Risks around future Official Cash Rate movements are equally weighted, reflecting balanced risks around inflation, Reserve Bank Governor Graeme Wheeler said today in a speech.

Speaking to Craigs Investment Partners’ Investor Day in Auckland, Mr Wheeler noted that the Bank’s February Monetary Policy Statement included a neutral bias with an unchanged OCR track until late 2019.

Expanding on the main risks around the interest rate projections, Mr Wheeler said:  “In effect, there is an equal probability that the next OCR adjustment could be up or down.  We consider the balance of risks for the global outlook to be downside.  For the domestic economy, there is some potential upside for output growth if migration and commodity prices turn out to be stronger than forecast, but the risks around inflation look balanced.


“This means that if the economy were to develop in line with the Bank’s economic projections, which are based on several assumptions, then the OCR would remain at its current level over the next two years. 

“However, small open economies such as New Zealand are hit by multiple shocks and the Bank assesses whether these, or a combination of them, warrants a change in monetary policy.”

While the outlook for global growth has improved over the past six months due to rising commodity prices and stronger business and consumer sentiment, several major sources of uncertainty exist in Europe, China and the United States.  The balance of risk in the global economy is on the downside.

“Many of the risks in these regions are well known, and already reflected in relative prices such as interest rates, exchange rates and commodity prices.  The greatest source of uncertainty relates to the US Administration policies in respect to its ‘America first’ policy platform.  Although a substantial US fiscal stimulus could be positive for growth in the global economy, the prospect of a marked increase in protectionism – coming at a time when global trade is growing slowly and trade disputes are increasing – would be expected to have sizeable impacts on the global economy.”

Domestically, there are several uncertainties around the economy, including the future path for commodity prices, the exchange rate, migration, the housing market, and household saving. 

“The greatest source of uncertainty currently lies around the housing market and the possibility that imbalances in the housing market might deteriorate.  Fortunately, house price inflation has moderated substantially in recent months, but it’s too early to say whether this moderation will continue.

“Another risk is that the exchange rate remains higher than projected in the MPS, suppressing tradables inflation and net exports.  As we indicated in the MPS, whether monetary easing would be required to offset this would depend on the factors driving the exchange rate (e.g. weaker global growth, higher commodity prices) and how domestic capacity pressures were changing.

“Our assessment is that the risks around the OCR are equally weighted.”

Post Top Ad

Responsive Ads Here