The Reserve Bank of New Zealand (RBNZ) toed the line on monetary policy Wednesday, opting to keep interest rates at record low in support of faster inflation and economic growth.
In its meeting Thursday, the central bank voted to keep its official cash rate at 1.75%, unchanged since November. The decision was widely expected by economists, who foresee only gradual rate hikes beginning next year.
New Zealand’s economy expanded at a slightly weaker than expected 0.5% in the first quarter, government data showed last week. That translated into a year-over-year expansion of 2.5%. The increase was fueled by agriculture, retail trade, manufacturing and household consumption.
There’s reason to believe that consumption will continue higher in the second quarter, based on the latest Westpac consumer survey. The bank’s consumer confidence index rose to 113.4 in the second quarter – the highest in over two years.
Manufacturing is also on the way up, according to the most recent PMI report from Business NZ. The group’s performance of manufacturing index (PMI) came in at 58.5 in May, the highest in 31 months. PMI above 50 signals expansion in economic activity, whereas a reading below that level points to contraction.
Next week, Wellington will release its latest batch of trade figures for the month of May.
The RBNZ will also keep a close eye on inflation, which ran hotter in the first quarter. The consumer price index (CPI) climbed to 2.2% in January-March, much higher than the Reserve Bank’s forecast of 1.5%.