New Zealand Monetary Policy

New Zealand

New Zealand: Central Bank reduces official cash rate to 2.75% in September; confirms stimulatory monetary policy

September 10, 2015

At its 10 September monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) decided to reduce the official cash rate (OCR) from 3.00% to 2.75%. This is the third consecutive meeting in which the RBNZ decided to modify the cash rate.

Regarding the international environment, the Central Bank noted that, “global economic growth remains moderate, but the outlook has been revised down due mainly to weaker activity in the developing economies. Concerns about softer growth, particularly in China and East Asia, have led to elevated volatility in financial markets and renewed falls in commodity prices.” The Bank highlighted that uncertainty remains regarding the timing of the rate hike by the U.S. Federal Reserve.

The Central Bank mentioned that New Zealand’s economy has moderated and is now growing at around 2.0% per year, mainly due to the fall in exports. In addition, both business and consumer confidence weakened and construction activity in Canterbury reached its peak. Nevertheless, according to the RBNZ, factors such as strong tourism and net immigration as well as an accommodative monetary policy and a depreciating currency are supporting the economy. The Central Bank pointed out that even though the exchange rate has lowered significantly, it remains overvalued and further downward adjustment is expected.

The Central Bank expects inflation to remain below its 1 to 3 percent target range throughout this year as a result of low oil prices, and expects headline inflation to return within its range by early 2016 as the effect of the weak New Zealand dollar passes through into higher prices.

The RBNZ suggested that further cuts in the OCR can be expected, highlighting that, “a reduction in the OCR is warranted by the softening in the economy and the need to keep future average CPI inflation near the 2 percent target midpoint. At this stage, some further easing in the OCR seems likely.” The next monetary policy meeting is scheduled for 29 October.

FocusEconomics panelists expect that the OCR will end this year at 3.38%. For 2016, participants see the interest rate ending the year at 3.58%.

Author:, Economist

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New Zealand Monetary Policy Chart

New Zealand Monetary Policy September 2015

Note: Official Cash Rate (OCR) in %.
Source: Reserve Bank of New Zealand.

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