Reserve Bank of New Zealand Keeps 2.5% Official Cash Rate

October 24, 2012

For the 22nd time in the last 25 interest rate policy meetings dating back to June 2009, the RBNZ’s Official Cash Rate was left unchanged at 2.5%.  The three exceptions were two hikes of 25 bps administered in June and July of 2010 and a post-earthquake cut of 50 bps in March 2011.  2.5% matches the all-time low reached in the Great Recession after seven cuts between July 2008 and April 2009 that totaled 575 basis points.

The most notable aspect of this latest decision was that the policy meeting was presided over by the central bank’s newly appointed Governor Graeme Wheeler. A released statement opines that

  • Market sentiment is better than it was earlier in 2012 but that the global economy remains fragile.
  • New Zealand domestic GDP is expanding modestly with support from reconstruction in areas hit by last year’s earthquake.
  • The high value of the New Zealand dollar is dampening the strength of net exports.
  • CPI inflation is below target but expected to rise toward the target midpoint.
  • Policy remains appropriate for now.
  • Price gauges such as pricing intentions and inflation expectations should be watched closely in coming months.

Only the final point was not included in the September 13th statement, the last one of the Governor Bollard era.  Another difference from that statement is the omission of an explicit comment that growth in China has slowed.  It’s possible that officials have some new doubt that inflation will in fact climb to the middle of the target range, since global inflationary pressures are lessening.  Hence, the new emphasis on monitoring a wider range of pricing data.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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