(Adds details, comment from RBNZ, economist)
By Charlotte Greenfield and Jane Wardell
WELLINGTON May 11 New Zealand's central bank
held its benchmark interest rate steady at 1.75 percent on
Thursday and retained its neutral bias, defying the expectations
of many economists that it would lean toward a tightening of
monetary policy in early 2019.
The New Zealand dollar fell sharply immediately
following the release of the Reserve Bank of New Zealand (RBNZ)
statement, dropping 1.4 percent to an 11-month low of $0.6843.
RBNZ Governor Graeme Wheeler said that a recent depreciation
in the New Zealand dollar was "encouraging, and if sustained,
would help rebalance the growth outlook."
He reiterated his statement from the last two rate decisions
in March and February that monetary policy "will remain
accommodative for a considerable period of time."
All 26 economists polled by Reuters had expected no change
to the official cash rate (OCR), which was lowered by 25 basis
points to the current record low in November, and forecast that
rates would remain stable throughout 2017.
Many had suggested, however, that Wheeler was coming under
pressure to discard his neutral stance on monetary policy with
inflation picking up faster than the central bank expected in
the first quarter.
"The OCR outlook was unchanged from its February MPS, still
implying a late 2019 tightening," Nick Tuffley, chief economist
at ASB in Auckland. "We had expected they would have brought
that forward to the first half of 2019, so that's a very firm
message from the RBNZ that the stance hasn't changed."
Wheeler said the increase in headline inflation in the March
quarter was mainly due to temporary effects, particularly
volatile petrol and food prices, and headline inflation would
reach the midpoint of the 1 percent-3 percent target band over
the medium term.
"Longer-term inflation expectations remain well-anchored at
around 2 percent," he added.
Inflation accelerated to 2.2 percent in the first quarter,
well above the RBNZ's projection of 1.5 percent. It was the
first time since 2011 the bank had reached the midpoint of its
(Additional reporting by Swati Pandey in SYDNEY, editing by G