Reserve Bank decision 'pushes out rate hikes'

The Reserve Bank has implicitly pushed out the expected timing of rate hikes, beyond the June start date that was projected in the December Monetary Policy Statement, says Dominick Stephens, chief economist at Westpac.

“This was broadly the communication that the market was expecting from the central bank; the difference of opinion between the RBNZ and market pricing (which suggests hikes delayed until well into next year) will probably not be resolved until later in the year, as we get more resolution on reconstruction and Europe.

“As expected, the Reserve Bank signalled a softening of its near-term policy stance without getting too specific in today's short statement. 

“The key change is the small but purposeful omission from the final sentence: while the December media release noted that it remained prudent "for now" to keep the OCR on hold, those two words were removed this time.  That eliminated the sense of pending hikes that was present in the December MPS.

“The rest of the statement was a mix of pluses and minuses relative to the last review. 

“On the plus side, the RBNZ noted that financial market sentiment has improved slightly, particularly in Europe.  The global situation remains tenuous, so for a typically conservative central bank to acknowledge some improvement is actually a meaningful bit of information about the RBNZ's thinking. 

“Another positive was that the pickup in the housing market and household spending were acknowledged in the statement for the first time.

“On the side of easier monetary policy, inflation was "reassuringly" remained well-contained - the softer CPI outturns recently will have come as less of a worry than as a relief compared to the large upside surprises in the first half of 2011. 

“The RBNZ also noted the recent gains in the NZ dollar, and the potential for further delays to rebuilding in Canterbury after the recent swarm of aftershocks. “

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