The Reserve Bank of New Zealand recently announced its decision to leave cash rates unchanged at 0.25%, in line with expectations that they will remain unchanged until at least the middle of 2022.
The bank also announced that it is maintaining a ceiling of NZ$70 billion for its bond purchase program.
Reserve Bank Governor Adrian Orr commented that the economic outlook continues improving, though economic uncertainty remains high. He also made a reference to the uneven recovery within and between countries.
"Economic uncertainty remains elevated and divergences in economic growth both within and between countries are significant," Orr commented.
Regarding the economy, the governor commented that it will take a lot of time to reach the central bank's 2% inflation target and attain full employment levels, adding that the current measures should be enough to meet them. Inflation is expected to increase in the near term, even reaching a level over the bank's target, mainly due to supply chain disruptions and increasing oil prices, which are pushing up production costs.
The bank also said it needs time to observe the impact of new housing market measures, which the government had to impose as an attempt to cool the markets, and the revival of tourism, now that the rest of the world is slowly coming back to normal and vaccination efforts are advancing.
At the end of March, the New Zealand government announced an increase in taxes and pledged to boost housing supply with a new NZ$2.73 billion fund. Single buyers would also get benefits, as the income cap to get housing financial assistance rose from NZ$85,000 to NZ$95,000, while income caps to get assistance for two or more buyers increased from NZ$130,000 to NZ$150,000.
There has been some controversy regarding the independence of the central bank since the government asked it directly to consider the impact of its ultra-loose monetary policy on the housing markets. The bank has acknowledged the impact of its measures on housing prices but has reaffirmed its independence.
The bank previously announced that it would create an enforcement department in an attempt to expand its regulatory resources.
According to the announcement, the enforcement department will aid the bank's supervisory and enforcement approach and help in promoting a sound and efficient financial system.
New Zealand has been successful in terms of containing the advance of the COVID-19 pandemic. So far, only 2,589 infections have been reported since the beginning of the pandemic, with a death toll of 26. Despite this success, the vaccine rollout has been slow, with only 30,194 Kiwis vaccinated.