New Zealand Cash Rate Held Steady at 2.5% as Expected

July 29, 2009

As at the previous interest rate meeting on June 11, New Zealand monetary officials did not cut rates further  but released a pretty somber statement warning of the risks of an excessively high kiwi and wholesale interest rates.  The central bank cash rate was first cut a year ago by 25 basis points to 8.0%.  Subsequent cuts of 150 basis points in December and January, 100 bps in October, and 50 bps in September, March and April reduced the rate by 575 bps in all to its lowest level since March 1999.  A statement released today  by officials stressed that the outlook remains highly uncertain and that improvement is contingent upon the further easing of financial conditions.  Inflation is not a problem currently and is expected to stay inside its target range over the medium term.  Policy has an accommodative bias.  Like the June statement, today’s communique promises not to raise the cash rate before late 2010 and leaves the door open to the possibility of further rate reductions.

Copyright Larry Greenberg 2009.

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