"We're still very much in the neutral stage where for the foreseeable future we don't see the OCR (official cash rate) increasing", said Wheeler, addressing his last monetary policy news conference before his five-year term ends next month. RBNZ feels that a lower exchange rate needed to increase tradable inflation and deliver balanced growth. The bank maintained its forecast that rates won't rise until the third quarter of 2019, and lowered its projections for inflation. Inflation has slowed more than economists forecast and economic growth has disappointed on the downside.
The currency nevertheless rose after the statement to trade at 73.51 USA cents at 12:27 p.m.in Wellington.
It notes that the exchange rate increased since May monetary policy largely due to a weaker dollar. "Markets were primed for something slightly more dovish".
WELLINGTON, Aug 10 (Reuters) - The Reserve Bank of New Zealand stuck firmly to its neutral stance on Thursday, saying there was no need to cut rates given a likely pick-up in inflation and appeared to be less anxious about the country's strong currency than some expected.
Criticism number 1: Tradables inflation was negative for about four-and-a-half years of your term, the longest period since the Great Depression (and headline inflation below 2%). "Milk powder prices were very high, the market was expecting a tightening and they were pricing that in, the terms of trade were at a 40 year high, the International Monetary Fund like ourselves was forecasting a positive output gap, and I think it was a reasonable judgment on the information that we had available", he said.
But he said headline inflation was likely to decline in coming quarters as the effects of higher fuel and food prices dissipate. It slowed to 1.7 percent in the June quarter, and the RBNZ today predicted the rate will drop to 0.7 percent in the first quarter of 2018 - lower than it previously expected.
In the first quarter of this year, New Zealand's economy grew a below trend 0.5%, after an anemic 0.4% expansion in the fourth quarter blamed on temporary factors including an quake.
According to RBNZ policy makers, global economic growth increased and became more broad-based but wage growth subdued due to surplus capacity.
The RBNZ also said it favoured a lower New Zealand dollar, although it avoided bold language, prompting a brief jump in the local currency.
Reserve Bank governor Graeme Wheeler initially tried at his last media appearance to bat away questions about whether he achieved his agreed aim of keeping inflation around two percent within a one to three percent band, saying he planned to outline his defence of his term's achievements in a speech before it ends on September 27.
"House-price inflation continues to moderate due to loan-to-value ratio restrictions, affordability constraints, and a tightening in credit conditions", Wheeler said.
The RBNZ's decision was widely expected by economists and also comes after a surprise fall in the second quarter employment rate and comparatively sluggish GDP growth.