* Rates left unchanged at record low 0.25%<\/p>\n
* LSAP retained at NZ$100 bln (Recasts with Governor Orr\u2019s comments from press conference)<\/p>\n
WELLINGTON, Feb 24 (Reuters) – New Zealand\u2019s central bank said on Wednesday it was in no rush to tighten monetary policy, after it kept interest rates at record lows and sounded a cautious note about the economic outlook.<\/p>\n
The Reserve Bank of New Zealand (RBNZ) said it did not expect to tighten settings until it was confident inflation was sustained at the 2% per annum target midpoint and employment was at maximum sustainable level.<\/p>\n
There was no specific date when that confidence would \u201cmagically arrive\u201d, Governor Adrian Orr said in a news conference. The central bank kept the official cash rate at a record low of 0.25%, as widely expected.<\/p>\n
\u201cIt\u2019s going to take some time to get that confidence. We are going to have to see these outcomes and understand the drivers,\u201d said Orr.<\/p>\n
He said the bank would need to be patient and heed lessons from previous crises in which central banks were too quick to normalise policy.<\/p>\n
The RBNZ also retained its large scale asset purchase (LSAP) programme at NZ$100 billion ($73.24 billion) and kept its Funding for Lending Programme (FLP) operation unchanged.<\/p>\n
\u201cThe Reserve Bank of New Zealand sounded dovish when it left policy settings unchanged today, but we still expect the Bank to begin increasing rates next year,\u201d Ben Udy, Australia & New Zealand Economist at Capital Economics, said.<\/p>\n
\u201cWhile the Bank stressed its willingness to provide further stimulus and its ability to implement negative rates, the Bank\u2019s forecast now show less stimulus is likely to be needed.\u201d<\/p>\n
Others disagreed, however, with Westpac Bank saying the RBNZ\u2019s statement discourages any view of a rate hike next year, adding that it sees no change in the OCR until 2024.<\/p>\n
RBNZ did note that the recent economic resilience means no significant additional stimulus is required at this time, but it kept the door open for using easing tools, including negative rates, if needed.<\/p>\n
\u201cIf we thought monetary conditions became inconsistent with what we need, we are prepared to move…the OCR can go lower,\u201d Orr told reporters.<\/p>\n
The central bank cut interest rates by 75 basis points in March last year and said it would remain unchanged for 12 months, while also introducing quantitative easing to support an economy hit by border closure and coronavirus lockdowns.<\/p>\n
But a quicker economic recovery and concerns about a red-hot property market buoyed by historically low interest rates and loosened lending rules have left markets speculating that the easing cycle has ended and that a rate hike may come sooner than first thought.<\/p>\n
Orr warned against \u201cone-sided bets\u201d in property as construction resumed and loan-to-value restrictions were reinstated.<\/p>\n
RBNZ\u2019s caution on the outlook disappointed some traders who expected the central bank to acknowledge New Zealand\u2019s improved macroeconomic conditions since the last policy decision in November 2020.<\/p>\n
The New Zealand dollar initially fell 0.2% but then quickly stabilised, rising to $0.7367, close to a three-year high.<\/p>\n
\u201cMarkets were always going to see what they wanted to see in today\u2019s (monetary policy statement),\u201d said ANZ chief economist Sharon Zollner. \u201cThis is a market that is in a glass-half-full mood, not a glass-half-empty mood.\u201d<\/p>\n