New Zealand Reserve Bank Signals Onset of Rate Increased to Occur Around Mid-2010

January 27, 2010

As expected, the Reserve Bank of New Zealand retained a 2.5% cash rate.  It’s key policy rate has been at that level since the end of April 2009.  Seven reductions totaling 575 basis points were implemented between July 2008 and then, starting with a cut of 25 bps in July 2008 and followed by a move of 50 bps in September, 100 bps in October, 150 bps in both December and January, 50 bps in March and a final 50 bps in April.

The need for an eventual rise in rates beginning “around the middle of 2010 is based on the desire to return to normal policy settings, not worries about inflation which, according to a statement released Thursday by officials, is “expected to track comfortably within the [target] band over the medium term.”  Like so many other economies, New Zealand’s is now recovering from a deep and long recession, but plenty of slack persists.  The statement notes that credit growth remains “subdued” and that business spending “remains weak.”  The statement urges the government to consolidate its budget as improving economic conditions allow, lest monetary policy have to bear too much of the burden of slowing down the economy and preserving price stability.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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