RBNZ’s Orr: OCR path projects 50 bps by mid this year, around July
Reserve Bank of New Zealand’s (RBNZ) Governor Adrian Orr explains the interest rate cut decision at a press conference following the February monetary policy meeting on Wednesday.
Orr is taking questions from the media.
Key quotes
OCR path projects 50 bps by mid this year, around July.
In two 25 bps steps.
Economy has significant spare capacity.
Cuts in April and May are about right.
Among near term risks is slower GDP growth.
Longer term risks include US tariffs which slow global growth.
Could see faster GDP growth at home if confidence returns.
3.75% is the high end of the range of neutral rates.
Tariffs are negative for growth globally and in New Zealand.
Would be beautiful world if we could get rates to neutral and keep them there.
We are seeing a turnaround in the economy.
NZ$ around fair value, has been a welcome boost to incomes.
Market reaction to RBNZ Orr’s presser
NZD/USD keeps losses as Orr's press conference gets underway. The pair is down 0.32% on the day, currently at 0.5685.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
