Central Banks

RBNZ gov says adopted neutral policy bias

Graeme Wheeler, governor of the Reserve Bank of New Zealand (RBNZ), speaks during a news conference in Wellington, New Zealand, on Thursday, Nov. 10, 2016.
Mark Coote | Bloomberg | Getty Images

The Reserve Bank of New Zealand has adopted a neutral monetary policy bias, Governor Graeme Wheeler said on Thursday, but did not think a hike was likely for perhaps two years or more.

Earlier, New Zealand's central bank held its benchmark interest rates at a record low of 1.75 percent and said monetary policy would remain accommodative "for a considerable period".

All 26 economists polled by Reuters had expected the Reserve Bank of New Zealand to hold rates.

"Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly," RBNZ Governor Graeme Wheeler said in a statement.

Wheeler said a recovery in commodity prices and more positive business and consumer sentiment in advanced economies had improved the global outlook.

"However, major challenges remain with ongoing surplus capacity in the global economy and rising geopolitical uncertainty," he added.

The NZ dollar dropped from around $0.7307 to $0.7255 after the statement was released.

The outlook for domestic growth was positive and recent moderation in house price inflation was welcome, but it was uncertain whether that moderation would be sustained given continued imbalance between supply and demand, he said.

Wheeler said inflation is expected to return to the midpoint of the central bank's 1-3 percent target band "gradually."

The bank slashed rates three times last year despite a buoyant economy in order to combat low inflation, which until the fourth quarter had lingered outside the bank's target range of 1 to 3 percent for two years.

Economists expect rates to remain on hold throughout 2017.

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