New Zealand's central bank left its benchmark Official Cash Rate (OCR) at 1.75 percent and while it confirmed that its monetary policy stance will remain accommodative for "a considerable period" it also raised the forecast for the key rate.
The Reserve Bank of New Zealand (RBNZ), which shifted into a neutral stance in November last year following a rate cut, confirmed its previous guidance that there are numerous uncertainties, particularly on the international front, and "policy may need to adjust accordingly."
In an update to its forecast, the RBNZ said the OCR rate would remain at its current level through June 2018 and then rise to 1.9 percent in September 2019 and then to 2.0 percent in March 2020.
In its policy report from November, the central bank forecast the OCR rate would be lowered to 1.7 percent from 1.8 percent in June this year and then remain at that level through December 2019.
The RBNZ shifted into an easing cycle in June 2015 and cut the rate by a total of 175 basis points, ending with a 25-point cut in November.
Underlying the slight increase in the expected key rate, the RBNZ said inflation had now returned to its target band of 1-3 percent as the drop in oil prices has dropped out of the calculation and is expected to return to the midpoint due to the strength of the economy despite the impact of the strong exchange rate of the New Zealand dollar, known as the kiwi.
But the RBNZ pushed back its forecast for annual inflation to hit 2.0 midpoint target to June 2019 from December 2018. By December 2019 inflation is seen averaging 2.1 percent, later than its previous forecast of March 2019.
In the fourth quarter of last year New Zealand's inflation rate jumped to 1.3 percent from 0.4 percent in the previous three quarters.
As in recent quarters, the RBNZ again voiced its displeasure with the strength of the kiwi, once again saying it remains higher than is sustainable for balanced growth and "a decline in the exchange rate is needed."
The kiwi began depreciating in July 2014 and fell to a low of almost 1.60 to the U.S. dollar in September 2015, a level not seen since 2009.
But since then, it has firmed though it fell in response to the RBNZ's statement. The kiwi was trading at 1.389 to the U.S. dollar today, down from 1.369 yesterday, but up from 1.44 at the start of this year.
The Reserve Bank of New Zealand issued the following statement by its governor, Graeme Wheeler: