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OCR kept low, lift timing unchanged

NZN 10/05/2017 Paul McBeth

Reserve Bank of New Zealand governor Graeme Wheeler has kept the official cash rate unchanged at 1.75 per cent and also kept the rate track unchanged, saying the recent jump in consumer prices may only be temporary.

The kiwi dollar fell on disappointment he didn't bring forward the track of rate hikes.

"The increase in headline inflation in the March quarter was mainly due to higher tradables inflation, particularly petrol and food prices," Mr Wheeler said on Thursday morning.

"These effects are temporary and may lead to some variability in headline inflation over the year ahead. Non-tradables and wage inflation remain moderate but are expected to increase gradually."

In February, the Reserve Bank adopted a neutral stance on policy, signalling the OCR would go nowhere until the middle of 2019.

Government figures showed annual inflation rose to 2.2 per cent in the first three months of the year, well above the RBNZ's forecast of 1.5 per cent, and the bank's survey of expectations saw firms raise their view on how quickly consumer prices would rise.

Economists were looking to see whether that changing view would spur Mr Wheeler to bring forward the track of interest rate hikes. However, he said developments since then had been neutral for monetary policy, and that while other central banks were winding back their extraordinary stimulus programmes, monetary policy would stay loose in advanced economies for some time.

The bank kept its forecast track for the OCR to be at 1.8 per cent until September 2019 when it rises to 1.9 per cent and doesn't fully price in an increase until March 2020 when a 2 per cent rate is pencilled in.

The kiwi dropped half a US cent after the release and was recently trading at US68.47 cents from US69.30c immediately before.

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