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RBNZ positive about outlook for NZ economy

NZN 27/06/2017 Rebecca Howard

The outlook for New Zealand's economic growth remains positive, albeit with considerable uncertainty remaining, the Reserve Bank says in its 2017-2020 Statement of Intent.

The statement outlines the bank's work programme over the next three years.

"We are working to deepen the bank's understanding of the evolving conditions affecting the New Zealand economy and their implications for monetary policy," governor Graeme Wheeler says.

The bank reiterated a key domestic risk continues to be the performance of the housing market.

House price growth has slowed over the past eight months, but the outlook for the housing market remains uncertain.

Mortgage interest rates remain low and while building activity has continued to increase, the rate of house building is insufficient to accommodate rapid population growth and address existing housing shortages, it said.

Given that many households are vulnerable to an increase in interest rates or a decline in income, the central bank is currently consulting on whether a debt-to-income policy instrument should be included in the set of macro-prudential instruments

The bank said the outlook for global economic growth had improved and become more broad-based during the past six months and stronger global demand had helped to raise commodity prices in the past year, leading to some increase in headline inflation among New Zealand's trading partners.

New Zealand's economy grew a little over 3 per cent during 2016, which is above the average pace of expansion over the past three decades, it said.

The expansion has been supported by accommodative monetary policy, strong population growth, and high levels of household spending and construction activity.

The trade-weighted exchange rate has fallen since early 2017, which, if sustained, will help to rebalance growth towards the tradeable sector.

The central bank said there could be variability in headline inflation over the year ahead but non-tradeables and wage inflation remained moderate, while being expected to increase gradually.

"This will bring future headline inflation to the midpoint of the target band over the medium term. Longer-term inflation expectations remain well-anchored, at around 2 per cent," it said.

Earlier this month the central bank kept rates on hold at 1.75 per cent and reiterated that monetary policy will remain accommodative for a considerable period.

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