The Reserve Bank this morning decided to leave the Official Cash Rate unchanged at 2.5 per cent. Here is some of the reaction to this decision. Keep refreshing this page through the day.
ANZ National Bank economist Khoon Goh said the Reserve Bank had delivered "a very circumspect statement".
"…it is clear that the spirit of what the Reserve Bank is trying to achieve is to reinforce the message that they have delivered previously: this recovery and rebalancing in the economy is going to take some time to play out and we are facing a very "U" or bathtub shaped adjustment."
"Interestingly, the RBNZ do not expect the recent momentum in household spending and the housing market to be sustained given the outlook for employment, farm incomes and high household debt. This is a view we concur with."
"Overall, while the RBNZ sees scope for further modest reductions in the OCR over coming quarters, it seems the Bank is fairly comfortable with policy where it is.
This is easy to rationalise given dissipating systemic risks, although clearly the NZ economy faces challenges ahead. But with the OCR at 2.5 per cent, the Reserve Bank has already responded aggressively to both economic and financial aspects to the cycle.
"While the Reserve Bank has left the door open for further cuts, lacking an offshore trigger, 2.5 per cent looks to be the trough in the policy cycle."
"Absent a further material deterioration in economic prospects or a rise in systemic risks to the financial system, we believe this easing cycle is now over."
"We are siding with the Reserve Bank in viewing that recent tensions (and a rising currency) will not last long."
Senior Economist at UBS New Zealand Robin Clements says the Reserve Bank gave an "appropriate recognition of the 'green shoots' abroad, namely 'international economic activity is stabilising, and international financial conditions are improving'. Likewise, the local turnaround in housing and immigration received due attention. However, the bottom-line, in the Reserve Bank 's own words is that 'There remain some material downside risks to activity and inflation' and 'recent developments point to lower inflationary pressure than previously projected'."
"The essence of the Reserve Bank 's rationale for pausing appears to be that they have already cut by a large amount and that this will take time to come through (as fixed-rate mortgages re-price). Along with stimulatory fiscal policy, low rates will be the 'main sources of support to the New Zealand economy at present'."
"Given that the Reserve Bank has not cut again, with the downside risks that it openly acknowledges, we think it is now unlikely that it will cut again in this easing cycle i.e. the base case is that the OCR is on hold at 2.5 per cent until late next year."
Thus, while we consider it would have been better to have added some more 'insurance' to underpin the 'slow and fragile' recovery, it now becomes the risk scenario that the OCR is cut again.
The circumstances that could force the Reserve Bank hand would be another global shock (not anticipated), a more significant than expected rise in unemployment (possible) and/or a faltering in the local 'green shoots' on account of tighter financial conditions (predominantly, the risk that the exchange rate continues to appreciate)."
Council of Trade Unions economist Peter Conway said the stagnating interest rate came as no surprise but was disappointing, given there was no stimulus package in the Government's Budget and the country is "getting punished" by the exchange rate.
He said a drop in the official cash rate could have kept the pressure up on banks to drop their floating mortgage rates.
Asked if the lack of movement in the interest rate would lessen the pressure on banks, Conway said: "To be fair, the Reserve Bank would say there has not been a bank response".
He said there was now an argument over whether or not the Reserve Bank has any influence over the commercial banks because of a shortage in retail deposits and borrowing from overseas.
"What's come out in recent days is commentary about the profitability of the banks in these circumstances," said Conway.
Bernard Doyle, an analyst at Goldman Sachs JBWere, said the Reserve Bank's decision today "was a tight call".
Doyle said the bank continued "to show a thinly veiled annoyance at margin padding in the banking system".
" In our view, the Reserve Bank has done the right thing by standing pat. We agree that it is too early to judge how sustainable the signs of life in the NZ domestic economy are. But it would be greater folly to ignore their existence. The Reserve Bank has kept the door open for further cuts. Our view remains that they won't be required."
ASB economist Jane Turner said today's announcement was "broadly as expected".
She said the Reserve Bank had "acknowledged signs of so-called green shoots, noting international economic activity is stabilising and international financial conditions are improving."
"While verbally the Reserve Bank has maintained its easing bias, their 90 day forecast does not actually incorporate another cut," said Turner. "The Reserve Bank may think it has done enough for now and the threshold for further cuts is now higher. The bank seems resigned to the fact the NZ dollar and longer-term rates are higher than would be ideal."
The ASB economists still think there is a good chance of further rate cuts, but they have pushed the timing of the cuts back - with 25 basis point cuts in September and October, taking the Official Cash Rate to 2 per cent.
New Zealand Manufacturers and Exporters Association chief executive John Walley said his association would have liked to see a cut of half a percentage point, and "tough talk and a clear message to the international community".
However, without the cut, "a clear message" needs to be sent.
"We wanted to see some tough talk, that we're not going to let the rest of the world rip the floor out from under us by running devaluation policies that puts pressure on our export industry," Walley said.
He said the Reserve Bank seems to see stronger economic conditions when in reality, the conditions are weak.
Walley said a lot of commentators have talked about Bollard needing to "keep his powder dry".
"We can keep the powder dry for so long that there is nothing left to shoot at," said Walley.
Deutsche Bank's David Plank's initial reaction was that there was "nothing in this statement to cause us to change our expectation that the Reserve Bank's easing cycle is now most likely at an end.
Critically, while the Bank still thinks the "risks to activity remain weighted to the downside", it is now prepared to admit to the possibility of upside surprises.
"In our view this makes the Reserve Bank less inclined to cut rates again unless it thinks it needs to counter the rise in the NZD or somehow offset the pressures from rising market rates."
------------------------------------------------------------------------
