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OCR unchanged but RBNZ still wary

NZN 22/03/2017 Paul McBeth

Reserve Bank governor Graeme Wheeler has kept the official cash rate unchanged at 1.75 per cent, as expected, and reiterated his view that the benchmark rate doesn't need shifting for the foreseeable future.

The unchanged rate, at a record low, was confirmed on Thursday morning.

Last month the Reserve Bank adopted a neutral stance on policy, signalling the OCR would go nowhere until the middle of 2019, while acknowledging risks in the housing market and US President Donald Trump's protectionist trade measures could change the outlook.

Mr Wheeler reiterated those concerns on Thursday, saying "major challenges remain with on-going surplus capacity in the global economy and extensive geopolitical uncertainty".

Economists aren't convinced the Reserve Bank will sit on its hands for another two years, with many predicting an increase in the cash rate next year as inflationary pressures emerge.

However, none of the 11 polled by BusinessDesk were predicting a move on Thursday, with last week's gross domestic product figures showing the wet spring weighed more heavily on economic growth than expected.

Mr Wheeler said December growth was weaker than expected, but that was in part due to temporary factors and the outlook was still positive due to "on-going accommodative monetary policy, strong population growth, and high levels of household spending and construction activity".

He reiterated his view that the consumers price index is expected to head to the bank's 2 per cent mid-point target over the medium term and said long-term inflation expectations was anchored around that level.

The kiwi has dropped 2.9 per cent against the greenback since the February review and was trading at US70.64 cents from US70.50c immediately before the release. The trade-weighted index has dropped about 3.8 per cent and was at 76.53 from 76.40, below the 79 average level expected for the first quarter.

Mr Wheeler noted the decline since February as "encouraging" but said "further depreciation is needed to achieve more balanced growth".

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