Reserve Bank holds rate and holds nerve on forecasts

The dollar rose this morning as the official cash rate was held at 1.75 per cent.

The dollar rose as the Reserve Bank stuck steadfastly to the neutral tone of its May statement - despite some sluggish economic data and a softer inflation outlook.

At the May MPS, only one quarter-point rate hike was projected by 2020. That forecast was retained.

A neutral statement was not surprising although some expectations of a more dovish tone to long term forecasts had crept into money markets.

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The NZD rose by almost 200 basis point from US73.44c to US73.58 before settling back slightly.

The inflation outlook now dips more sharply in 2018 (to 0.7% yoy), reflecting recent food and fuel price movements, ASB economists said their snap commentary.

"The longer-term view is roughly similar to the May forecasts. The NZD comments were largely similar, though rearranged to put more weight on the need for the NZD to boost tradeable inflation."

RBNZ forecasts still have rates rising as the next move. But not until late 2019 or early 2020.

ASB continues to expect the RBNZ to remain on hold until February 2019.

Governor Graeme Wheeler will address media from 10am on his final monetary policy statement before retiring.