INTERVIEW-NZ cenbank chief says easing bias remains for now, cites economic risks

risks@

* Adrian Orr says easing bias remains for now

* Orr says softer global conditions led to dovish tone

* RBNZ chief says currency around ‘happy place’ (Adds more comments from RBNZ chief, context on policy & economy)

WELLINGTON, April 16 (Reuters) - New Zealand’s central bank governor Adrian Orr said on Tuesday an easing bias on interest rates will remain in place for now and that softer global economic conditions had contributed to the bank’s recent shift to a dovish policy tone.

At the last policy review in March, the Reserve Bank of New Zealand (RBNZ) held the cash rate steady at 1.75 percent, but stunned markets by clearly stating that the next move in rates would likely be a cut.

“It remains, but it remains to be challenged by the data that we have seen,” Orr told Reuters in an interview when asked if the central bank is maintaining its easing bias.

Orr, a central bank veteran, took the helm at the RBNZ in March last year. He worked in the RBNZs economics department between 1997 and 2000, and later served as deputy governor for four years before joining the New Zealand Super Fund in 2007.

When he took charge 12 months ago, Orr said the central point for interest rates was 1.75 percent, but the broad center of risk for the next move was to the upside.

On Tuesday, reflecting on the shifting economic conditions, the governor said “it’s been interesting watching that edge move away from the central to the downside.”

“We have no monopoly on wisdom....we were simply observing how everyone else were going and changing their positions. Some had biases up to neutral, some had neutral to down.” He said the U.S. Federal Reserve was getting more nervous about the growth outlook, China’s economy was giving mixed signals while uncertainty dogged European policymakers and Britain continued to grapple with its plans to exit from the European Union.

“So the answer is, it got softer,” he said.

Orr said the RBNZ is still assessing data and broad economic conditions for the next interest rate decision on May 8, which would be the first to be delivered by a new monetary policy committee, rather than the governor alone.

“But it’s a good position to be in. If the next move is really difficult or uncertain, then it means you are in not too bad a position to begin with. If the next move is screamingly obvious then what are you doing here?”

Orr also said the New Zealand dollar is trading around a “happy space,” suggesting the central bank has no immediate concerns about the currency’s current value. The kiwi dollar eased back slightly to $0.6757, from a top of $0.6782 on Monday, mainly driven by a faltering Australian dollar.

SLOW INFLATION

New Zealand’s inflation edged up 0.1 percent in the fourth quarter on higher service costs, though the annual rate of 1.9 percent was still below the RBNZ’s target midpoint at 2 percent. Economic growth in the last quarter of 2018 rebounded, expanding 0.6 percent though still running below potential.

Speaking about inflation, Orr said any undershooting in the consumer price index data due to be released on Wednesday has already been factored in.

“A lot of it has been factored in because really what youre looking at is a long period of being surprised to the downside of CPI inflation so weve kind of re-centered and thought about that...,” he said.

Orr has been busy since taking up the top job at the RBNZ.

In just a year, he has overseen a restructuring of the bank, appointed a new monetary policy committee, and introduced a proposal for banks to raise its capital ratio.

In December, RBNZ proposed new bank capital rules that almost doubled the minimum regulatory requirement for tier 1 capital for all banks to 16 percent. Most lenders currently hold around 12 percent of tier 1 capital.

New Zealand’s top four banks, which are all Australian-owned, may have to raise NZ$20 billion ($13.53 billion) in new capital over the next five years to meet the proposed requirements, the central bank has said.

The RBNZ on Tuesday extended the consultation period for the proposal by two weeks to May 17. Orr said there have been 42 submissions so far, but none directly from banks.

“I have been under immense external pressure from the banks and interested parties representing the banks on what we are doing,” Orr said.

“We are truly open minded to make the right decision for New Zealand...not for any one bank.” (Editing by Shri Navaratnam)