New Zealand: Central Bank resumes easing in December, cuts official cash rate to 2.50%
December 10, 2015
At its 10 December monetary policy meeting, the Reserve Bank of New Zealand (RBNZ) cut the official cash rate (OCR) from 2.75% to 2.50%. The RBNZ had cut the cash rate in three consecutive meetings before holding it at its meeting in late October.
Regarding the international environment, the Central Bank noted that global economic growth and inflation rates are still low, “despite highly stimulatory monetary policy.” Moreover, unease in financial markets remains due to concerns over a slowdown in emerging economies, especially China. The Bank also highlighted that markets are expecting a divergence in monetary policies among major economies as the U.S. Federal Reserve is poised to announce a rate hike soon.
Regarding the domestic economy, the Central Bank emphasized that growth softened in 2015 due in large part to deteriorated terms of trade. However, a recovery in export prices, higher confidence levels and rising domestic demand are expected to boost the economy in 2016.
The Central Bank expects inflation to move up and fall within the 1%–3% target range next year as the impact of lower oil prices fades and the lower U.S. dollar leads to higher import prices. However, there is a risk that dairy prices may remain weak for an extended period of time and El Niño may disrupt output.
The RBNZ explained that the rate cut was introduced to help ensure that inflation settles within the target range. The Bank is confident that its latest cut will be sufficient, but it did keep the door open for further policy changes if necessary. The first monetary policy meeting of 2016 is scheduled for 28 January.
Author: Eric Denis , Economist