RBNZ Governor Orr says weaker GDP ‘complex situation’

By Lucy Craymer

WELLINGTON (Reuters) – New Zealand central bank Governor Adrian Orr said on Wednesday that surprisingly weak third quarter economic data was a “complex situation,” but there were other data points to be released before the next cash rate decision.

Orr told a New Zealand parliament committee on Wednesday that the central bank was analysing the data. “We are busily internalising,” he said, adding that before the February cash rate decision other key data points including employment were due to be released and would weigh in to their decision.

Gross domestic product(GDP) data released last week showed that the New Zealand economy unexpectedly contracted 0.3% in the third quarter, while historical growth figures were also revised significantly downwards.

Orr said that interest rates continue to constraint spending but that the committee remains wary of inflationary surprises.

“There’s still a long way to go, particularly with the level of core inflation, or homegrown inflation, still remaining too high,” he said.

The Reserve Bank of New Zealand last month held the official cash rate (OCR) steady at 5.5% but noted inflation remained too high and signalled further policy tightening might be needed if price pressures did not ease.

One of the biggest challenges is that migration in New Zealand is currently at record high levels, which is boosting overall spending and putting pressure on some prices including house rentals.

Orr said that the central bank had been surprised by the continued high levels of inward migration and noted its impact on demand and core inflation.

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