Thursday’s Monetary Policy Statement (MPS) is shaping up to be the most anticipated economic event in quite a while.
Although no economists are picking a change to the Official Cash Rate (OCR), it will be the first time new Governor Adrian Orr will be fronting the MPS press conference.
It will also be the first MPS since the Reserve Bank’s Policy Target Agreement was changed to ensure the central bank “contribute[s] to supporting maximum sustainable employment.”
ASB chief economist Nick Tuffley says the combination of both these factors will make the MPS the most anticipated since the Reserve Bank signalled the end of its last easing cycle, which was in November 2016.
“Given this is Adrian Orr’s first MPS as Governor, more tea-leaf reading than usual will go into the statement and forecasts for any signs that the Governor is steering the RBNZ’s assessment in a different direction.”
“In the first five weeks of his term it already feels like he has given more media interviews than the previous permanent Governor gave over his whole five-year term,” Tuffley says.
This has set the stage for a much higher level of transparency, which will leave financial markets and the public more aware of the thinking within the Reserve Bank.
But Orr’s approach to more frequent communication could be a double-edged sword.
“More frequent communication might increase the incidence of miscommunication or misinterpretation, merely through more occasions existing,” Tuffley says.
The new employment mandate is not expected to have much impact on Thursday’s statement, says Capital Economics chief New Zealand economist Paul Dales.
“Other central banks, such as the Reserve Bank of Australia and the US Fed, already have a dual mandate but conduct monetary policy in much the same way as the Reserve Bank already does.”
As well as this, at 4.4% [unemployment] the labour market is not presenting a strong case for adjusting interest rates in either direction, Dales says.
“At least in the near-term, the only change we expect to come as a result of the dual mandate is a greater focus in the MPS on labour market conditions.”
In its last MPS, the Reserve Bank’s forecasts showed it didn’t expect the OCR to rise until mid-2019.
But Tuffley says the risks are skewed to the Reserve Bank pushing out the timing of its forecast OCR increase to the end of 2019.
Given the weaker than expected economic growth figure and low inflation, the implication is the Reserve Bank will tweak down its assessment of growth and inflation and will therefore push out expected OCR increases.
But ANZ chief economist Sharon Zollner says there are signs inflation will begin to pick up soon.
Since the February MPS, oil prices have increased by 6%, the NZ dollar has fallen and the minimum wage has increased.
All these factors will help boost inflation in the short-term but questions still remain over how persistent the impacts will prove, she says.
Westpac chief economist Dominick Stephens says because of low wage growth – which decelerated in the first quarter of this year – inflation has been, and will continue to be, “missing in action.”
“That’s an important reason we think the OCR can stay low for a long while yet.”
Stephens is not expecting the OCR to be hiked until at least the end of next year.