WELLINGTON (Reuters) – New Zealand’s central bank is expected to leave interest rates and its quantitative easing program unchanged this week as it assesses the economic impact of some returning international tourists and the government’s new housing market measures.
In a Reuters poll, all 11 economists expected the Reserve Bank of New Zealand (RBNZ) to stay on Wednesday, and expect to keep the official rate (OCR) at a historic low of 0.25% for the rest of the year.
Only three interest rates are expected to be raised after the second half of next year.
Business sentiment has faded in recent months despite a tremendous rebound in economic activity following the COVID-19 lockdown, and the economy contracting in the last quarter of 2020.
But these losses are offset by improving global prospects, and the return of Australian tourists to New Zealand next week via the COVID-19 ‘travel bubble’ arrangement.
“We expect no change in monetary policy setting at the outlook next Wednesday, with the OCR held at 0.25% for the foreseeable future,” said Westpac economist Michael Gordon.
“The latest news on the domestic economy is weaker than expected, but this is offset by the rapidly improving global outlook and growing concerns about cost and price pressures,” he said.
The central bank cut interest rates by 75 basis points in March last year and vowed to keep them unchanged for 12 months, while also introducing quantitative easing to support economies hit by border closings and coronavirus lockdowns.
But the faster economic recovery and worries about a burning property market supported by historically low interest rates have led markets to speculate that the easing cycle is over, and a rate hike may come sooner than expected.
Under political pressure to cool the housing market, Prime Minister Jacinda Ardern introduced a series of measures that burden investors with new taxes.
Analysts expect the RBNZ to postpone any short-term policy action until assessing the impact of the new property cooling measures on the economy.
“The housing market is an important driver of the current economic momentum, so housing developments have a significant impact on the OCR outlook,” said ANZ economist Sharon Zollner.
Reporting by Praveen Menon; edited by Shri Navaratnam