Reserve Bank of New Zealand

June 11, 2015

In an unexpected move, New Zealand’s Official Cash Rate was cut for the first time since March 2011.  The drop to 3.25% from 3.5% left the OCR still 75 basis points above the 2.50% low over the two years from March 2011 through March 2013, and an accompanying statement failed to rule out additional monetary relief.  “We expect further easing may be appropriate. This will depend on the emerging data.”  The statement observes greater downside growth risks and subdued inflation.  “The fall in export commodity prices that began in mid-2014 is proving more pronounced. The weaker prospects for dairy prices and the recent rises in petrol prices will slow income and demand growth and increase the risk that the return of inflation to the mid-point would be delayed.”  The statement also calls the kiwi currently “overvalued” and argues that further depreciation, which today’s interest rate cut in theory will promote, “is needed to put New Zealand’s net external position on a more sustainable path.”

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.