The sudden outbreak of Covid Delta in the Auckland area and snap lockdown has forced the Reserve Bank of NZ to hold off lifting its key cash rate.
A rate rise had been expected after the country’s jobless rate fell to4% in the June quarter and housing and constriction activity continued at high levels.
The RBNZ had all but signalled the looming increase at its July meeting when it stopped its Quantitative Easing bond buying and warned of the pressures seen in the strengthening economy.
But in a statement after the RBNZ’s policy meeting on Wednesday the bank said
“The Monetary Policy Committee agreed to retain the current stimulatory level of monetary settings, keeping the Official Cash Rate (OCR) at 0.25 per cent for now. Today’s decision was made in the context of the Government’s imposition of Level 4 COVID restrictions on activity across New Zealand.”
“…the need to reinstate COVID-19 containment measures in some regions highlights the serious health and economic risks posed by the virus. Persistent and elevated health risks are promoting ongoing global supply chain disruptions, and are acting to constrain productive capacity and prolong inflationary pressures.
“Today’s re-introduction of Level 4 restrictions to activity across New Zealand is a stark example of how unpredictable and disruptive the virus is proving to be,” the RBNZ said, highlighting how a non-economic factor like Covid could change the minds of a central bank.
“The Committee agreed they are confident of meeting their inflation and employment remit with less need for the existing level of monetary stimulus.
“However, the Committee remains alert to the supply disruptions that COVID-19 can create, and the dampening effect this can have on confidence.
“House prices are also above their sustainable level, heightening the risk of a price correction as supply increases.
“The Committee agreed that their least regrets policy stance is to further reduce the level of monetary stimulus so as to anchor inflation expectations and continue to contribute to maximum sustainable employment. They agreed, however, to keep the OCR unchanged at this meeting given the heightened uncertainty with the country in a lockdown,” the statement ended.
