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RBNZ still wary of Trump trade 'spanner'

NZN 1/03/2017 Paul McBeth

The Reserve Bank is comfortable with economic projections underpinning its bias to keep the official cash rate on hold until the middle of 2019.

However, the local housing market and US President Donald Trump's trade ambitions could throw a spanner in the works, governor Graeme Wheeler says.

Speaking to a Craigs Investment Partners' investor day in Auckland, Mr Wheeler reiterated the risks to the central bank's outlook outlined in the first policy review of the year in February.

New Zealand's economy is in a purple patch, with levels of economic and employment growth well ahead of the country's 30-year average, and the bank sees the risks evenly balanced in respect to the OCR, which could go either up or down from its 1.75 per cent level depending on whether there was an unexpected shock.

Mr Wheeler said the balance of risks from the global economy - chief of which is whether Mr Trump would pursue an "America first" trade strategy - are to the downside, whereas the local economy held upside risks if migration and commodity prices came out ahead of forecast.

"We remain comfortable with our economic projections," Mr Wheeler said in speech notes.

"Given the external and domestic risks in respect of output and inflation, we consider the risks evenly balanced in respect of the OCR."

The speech treads over the same ground Mr Wheeler and his deputies covered last month in highlighting the uncertainty of Mr Trump's trade protectionism, which could warrant a faster pace of interest rate hikes by the US Federal Reserve, which would bolster demand for the greenback and increase the cost of New Zealand's imported goods.

Similarly, it highlights the bank's uncertainties about the housing market, which has shown early signs of moderation but still suffers from structural issues such as a shortage of housing in Auckland.

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