New Zealand: Central Bank keeps official cash rate unchanged at 2.75% in October
October 29, 2015
At its 29 October monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) decided to keep the official cash rate (OCR) unchanged at 2.75%. This ends a cycle of three consecutive meetings in which the RBNZ decided to lower the cash rate.
Regarding the international environment, the Central Bank noted that, “global economic growth is below average and global inflation is low despite highly stimulatory monetary policy. Financial market volatility has eased in recent weeks, but concerns remain about the prospects for slower growth in China and East Asia especially.” The Bank highlighted that uncertainty remains regarding the timing of the rate hike by the U.S. Federal Reserve.
Regarding the domestic economy, the Central Bank mentioned that persisting low dairy prices continue to weigh on farmers’ incomes. Nevertheless, according to the RBNZ, factors such as strong tourism and net immigration as well as an accommodative monetary policy have supported robust expansions in services and construction sectors.
The Central Bank expects inflation to remain below its 1%–3% target range throughout this year as a result of low oil prices and previous strength in the currency. The RBNZ expects headline inflation to return to within its range by early 2016 as both effects fade gradually. However, the recent appreciation of the NZD threatens to cause inflation to decrease again, which might urge the RBNZ to reduce its interest rate. Nevertheless, the Central Bank highlighted that, “continued economic expansion is expected to result in some pick-up in non-tradables inflation, despite the moderating effects of strong labour supply growth.”
The RBNZ suggested that despite its decision to keep the OCR on hold, further cuts could be expected, highlighting that, “to ensure that future average CPI inflation settles near the middle of the target range, some further reduction in the OCR seems likely. This will continue to depend on the emerging flow of economic data. It is appropriate at present to watch and wait.” The next monetary policy meeting is scheduled for 10 December.
Author: Eric Denis , Economist