By Stella Qiu
WELLINGTON, Feb 19 (Reuters) – A top New Zealand central banker said on Thursday the next move in interest rates will likely be up, though uncertainty over the path of inflation and consumer demand meant there are still risks on both sides.
Karen Silk, Assistant Governor at the Reserve Bank of New Zealand, made the comments in an interview with Reuters on Thursday.
The RBNZ kept its benchmark official cash rate (OCR) at 2.25% on Wednesday and said monetary policy would stay accommodative for some time to foster an economic recovery.
Its revised OCR track, however, implies the next move in policy rates will be up and there is some possibility that it could happen by the year end.
• Silk said the central scenario for policymakers is the easing cycle is now over and the next move in rates is up, but there are risks on either side. On the downside, there is weak consumption, while on the upside, inflation could be sticky.
• Silk said the central bank was not trying to push back against market pricing for rate hikes. “I think it is just a reflection of reality” to say that policy will stay accommodative for some time, she said.
• Silk said the central bank will be watching activity and inflation data to decide when to hike interest rates. “Even with a small increase, then you’re really only coming into the bottom end” of what the central bank views as the band for the neutral rate, she said.
• Core inflation is forecast to fall towards the mid-point of the 1%-3% target band even as the economy recovers. “It’s just the quantum of spare capacity that sits in the economy, you can actually have growth that goes above potential for a period of time and still have inflation come back,” she said.
• When asked about the new monthly CPI data, which led the RBNZ to switch to eight meetings from next year, from seven now, Silk said the monthly indicators could still be volatile and they only complement other data the central bank will be watching.
(Reporting by Stella Qiu; Editing by Muralikumar Anantharaman and Shri Navaratnam)
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