RBNZ: move along, nothing to see here!
Well, that’s 20 straight months at 1.75% and the RBNZ’s longest run of inertia on rates for many, many years. But the two words from Governor Orr that stuck out were, “for now". Between the lines, the RBNZ is not exactly wildly confident about the NZ economy, given that in 2018 it’s been growing with all the vigour of a rose in a dry vase. The 2.7% growth recorded was the slowest in four years and is down from 2.9% in 2017.
Household consumption, a huge driver of our economy, was also flat, thanks in no small part to the discovery of stink bugs in auto imports. This sluggishness will probably see rates stay on-hold for the rest of this year and may even give the RBNZ cause to drop rates in 2019. It’s keen to keep rates low so that people have spare cash to spend on goods and services, thus avoiding the growing danger to the economy posed by a heavily-indebted nation with anaemic wage growth.
But that outlook might all change if we see the long-anticipated and long-awaited outbreak of global growth finally arrive on NZ shores. This would fuel global demand for NZ products and services, pushing up growth and fanning the marching forces of inflation. And the best way to curb inflation is to raise interest rates. As you can see, the RBNZ’s next moves are fraught. For now, we’re going to sit on the fence and see what transpires over the next few months.