New Zealand Monetary Policy

New Zealand

New Zealand: Central Bank reduces official cash rate to 3.25% in June; confirms stimulatory monetary policy

June 11, 2015

At its 11 June monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) decided to reduce the official cash rate (OCR) from 3.50% to 3.25%. This is the first meeting in which the RBNZ decided to modify the cash rate following six consecutive meetings at which the Bank kept the rate on hold.

Regarding the international environment, the Central Bank noted that, “growth in the global economy remains moderate. Data on economic activity in the US, China and Australia has been mixed, although there has been some improvement in the euro area and Japan.”

The Central Bank mentioned that New Zealand’s economy is continuing to grow at around 3.0% per year, supported by low oil prices, high net migration and construction activity, as well as by accommodative monetary policy. Nevertheless, according to the RBNZ, the fall in export commodity prices that started in the middle of 2014 has been more pronounced than expected. Weaker prospects for dairy prices and the rebound in petrol prices will weigh on domestic demand and will keep inflation pressures subdued. The Central Bank pointed out that even though the exchange rate started to decline in April, it remains overvalued and further downward adjustment is expected.

The Central Bank expects inflation to remain low throughout this year as a result of the falling import prices and the strong growth in the economy’s supply potential. In addition, wage inflation and inflation expectations remain subdued. However, the RNBZ noted that house prices continue to grow rapidly in Auckland and has stated that an increase in the housing supply is needed.

The RBNZ suggested that further cuts in the OCR can be expected, highlighting that, “a reduction in the OCR is appropriate given low inflationary pressures and the expected weakening in demand, and to ensure that medium term inflation converges towards the middle of the target range.” The next monetary policy meeting is scheduled for 23 July.

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 June 2015 0

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


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