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New Zealand Monetary Policy September 2019

New Zealand: RBNZ stands pat in September

On 25 September, the Reserve Bank of New Zealand (RBNZ) kept the official cash rate (OCR) unchanged, following a surprise 50-basis-point cut at August’s meeting. Therefore, the OCB stays at an all-time low of 1.00%. The Bank also indicated the possibility of taking more radical action ahead amid weak demand conditions and a subdued inflationary environment.

While the RBNZ acknowledged the persistent softness in economic activity, it also noted that August’s rate cut is gradually translating into lower lending rates and a weaker exchange rate, which prompted the Bank to stand pat. Moreover, inflation remains within the target range of 1.0%–3.0%, and the Bank expects it to rise to the band mid-point as the latest policy cut takes effect, while employment is hovering around its maximum sustainable level. That said, business sentiment is firmly entrenched in negative territory, weighed down by policy uncertainty and worsening profitability in some sectors. Going forward, growth should strengthen thanks to low interest rates and some fiscal stimulus, although risks from trade tensions remain high.

In its forward-looking guidance, the RBNZ stated it expects the monetary policy conditions to remain loose and even signaled the possibility of further rate cuts. Fears over the bitter U.S.–China trade clash, weakening global growth and the dovish stance of major central banks could prompt the RBNZ to further cut rates in the near future.

The next monetary policy meeting is scheduled for 13 November.

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