New Zealand's central bank maintained its benchmark Official Cash Rate ((CR) at 3.5 percent but adopted a neutral policy stance by saying that it "future interest rate adjustments, either up or down, will depend on the emerging flow of economic data."
The Reserve Bank of New Zealand (RBNZ), the first central bank in advanced economies to raise its rate last year, added that it expects to keep its rate on hold for some time.
In its previous statement from December, the RBNZ had maintained an tightening policy bias, saying further increases in the policy rate were expected to be required at a later stage. Economists had expected the RBNZ to maintain rates and adopt a more dovish outlook for rates.
The reasons for the RBNZ's more pessimistic view is based on a weaker than expected growth in its trading partners, fiscal consolidation, lower dairy prices, the risk of drought and the dampening impact of the high exchange rate of the New Zealand dollar, known as the kiwi.
The effect is that inflation is likely to be below the central bank's target band through this year, and could even turn negative "for a period" before its moves back toward 2 percent, but in a slower fashion that previously expected.
On the other hand, RBNZ Governor Graeme Wheeler acknowledged that lower oil prices, and thus fuel prices, "will increase households' purchasing power and lower the cost of doing business," while the housing market was showing signs of picking up, particularly in Auckland.
As in recent months, Wheeler said the exchange rate of the kiwi "remains unjustified" and unsustainable despite recent easing and he expects to "see a further significant depreciation."
New Zealand's consumer price inflation rate eased to 0.8 percent in the fourth quarter from 1.0 percent in the third quarter, below the RBNZ's target of 2.0 percent, plus/minus 1.0 percentage point.
The country's Gross Domestic Product expanded by 1.0 percent in the third quarter of last year from the second quarter for annual growth of 3.2 percent, unchanged from the second quarter.
The kiwi appreciated slowly but surely from March 2009 to July 2014 but has been depreciating since then, especially since Jan. 19. It fell sharply in response to the RBNZ's shift in guidance, quoted at 1.357 to the U.S. dollar, down 5.5 percent this year.
The Reserve Bank of New Zealand (RBNZ) issued the following statement by its governor, Graeme Wheeler: