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New Zealand Monetary Policy June 2019

New Zealand: RBNZ stands pat in June

On 26 June, the Reserve Bank of New Zealand (RBNZ) left the official cash rate (OCR) unchanged at an all-time low of 1.50%. The move was in line with market expectations, although some analysts had expected the board to continue easing its monetary policy stance due to a subdued inflationary outlook and weaker domestic demand.

Below-target inflation, continued softness in the housing market and a weak global trade backdrop were taken into account in the Bank’s decision. Nonetheless, the board ultimately stood pat owing to stronger-than-expected growth in the first quarter. Moreover, increased spending in the 2019 budget, together with a fall in mortgage rates and the government’s decision to scrap the planned capital gains tax, further improves the outlook for domestic demand and led the RBNZ to adopt a wait-and-see approach. That said, protracted softness in the housing market and negative business sentiment continue to cast a shadow on domestic spending.

In its forward-looking guidance, the RBNZ left the door open to further rate cuts. Intensifying global trade tensions, a cooling in global growth and looser monetary policy stances in the main central banks abroad could lead the RBNZ to cut rates as soon as at its next meeting.

The next monetary policy meeting is scheduled for 7 August.

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