New Zealand Official Cash Rate Unchanged

October 27, 2010

The Reserve Bank of New Zealand left the OCR rate at 3.0% as it had also done on September 16 following back-to-back increases of 25 basis points each in June and July.  A statement from the RBNZ noted some weaker-than-projected data released recently but believes the recovery is intact because of coming support form high export prices and reconstruction after the earthquake earlier this year on the South Island.  It may take years, but excess resource slack will be gradually worked down, and “while it is appropriate to keep the OCR on hold today, it remains likely that further removal of monetary policy support will be required at some stage.”  The Official Cash Rate was cut initially by 25 basis points in July 2008 after being at 8.25% for a whole year.  Later cuts of 50 basis points in September 2008, 100 bps in October 2008, 150 bps each in December 2008 and January 2009, and 50 bps each in March and April of 2009 slashed the rate to 2.5% during a prolonged recession.  New Zealand’s key interest rate thus peaked 100 basis point above the cyclical high in Australia but bottomed subsequently at 50 bps below the cyclical low in Australia, which unlike New Zealand managed to avoid a recession.  New Zealand’s cash rate is now 150 bps lower than Australia’s.

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

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