Reserve Bank of New Zealand Official Cash Rate Is Cut

December 9, 2015

The OCR as expected was cut by 25 basis points to 2.5%, thus returning for a third time to the low level first observed from March 2009 until October 2010 and subsequently from March 2011 to March 2014.  Following four 25 basis point hikes in 2014, today’s action represents the fourth 25-basis point cut this year following moves in June, July and September.

A released statement says that the lower level should prove appropriate for returning to its 1-3% target, but lists a number of risks and expresses a continuing readiness to “reduce rates if circumstances warrant.”  One justification for today’s interest rate cut is the kiwi’s rise since August, a de facto tightening of monetary conditions.  The statement calls this appreciation “unhelpful” and expresses a hope that the kiwi fall from current levels.  Noting softer economic growth this year, officials called their action also justifiable in light of the upward impact weaker growth is having on spare capacity and unemployment.

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

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