Reserve Bank governor Graeme Wheeler, in one of his last acts in the job, said developments since the February monetary policy statement, on balance, were considered to be neutral for the stance of monetary policy.
Monetary policy would remain accommodative for a considerable period. Numerous uncertainties remained and policy might need to adjust accordingly, he said.
The central bank left the OCR unchanged at 1.75%, as expected. What confused economists was Mr Wheeler’s stance on monetary policy.
ANZ chief economist Cameron Bagrie described the Reserve Bank stance as "aggressively neutral", as the central bank left its projected OCR profile unchanged.
"We’re scratching our heads regarding some of the aspects. The inflation forecasts seem to be testing the realms of credibility, given an economy forecast to continue to grow above trend."
The message from the Reserve Bank was clear: policy was set to remain on hold for a considerable period and it had no interest whatsoever in preempting policy tightening.
Mr Bagrie said he also suspected the central bank was "quietly smug" about the tightening in policy being applied by the banking sector, a factor under-appreciated by the market.
BNZ markets economist Stephen Toplis said he was not surprised the OCR was left untouched.
He was also not surprised the bank focused on the transitory nature of some price shocks recently experienced.
However, he was surprised the overall stance of policy remained neutral and there did not appear to be even the slightest nod to a tightening bias.
"In the end, the bank appears to have written off the inflation that is evident as transitory and/or has accepted the inflation pressures that pervade are manageable and non-threatening.
"We do not think this is appropriate."
ASB chief economist Nick Tuffley was surprised recent events had a neutral impact on the Reserve Bank’s OCR outlook.
To underscore the message, the Reserve Bank explicitly said the impact of recent events was "neutral".
Also, the bank’s published forecast for the OCR was the same as that published in February, showing a late 2019 start to the tightening cycle.
"We expected the Reserve Bank would bring forward the implied tightening cycle at least six months into the first half of 2019. The Reserve Bank’s key message remains there is absolutely no hurry, particularly compared to market pricing, to lift the OCR."
Mr Wheeler said in his statement stronger global demand had helped to raise commodity prices in the past year, which had led to some increase in headline inflation across New Zealand’s trading partners.
The level of core inflation had generally remained low. Monetary policy was expected to remain stimulatory in the advanced economies, but less so looking ahead.
House price inflation had moderated further, especially in Auckland. The slowing house price inflation partly reflected loan-to-value restrictions.
"This moderation is projected to continue, although there is risk of resurgence given the continuing imbalance between supply and demand," he said.
At a glance
• OCR remains at 1.75%.
• Reserve Bank takes benign view of latest economic factors.
• Economists take a dim view of Reserve Bank’s stance.
• No sign of rate rise before end of 2019 or early 2020.
