New Zealand’s Official Cash Rate Cut to 2.25% from 2.50%

March 9, 2016

New Zealand’s central bank interest rate had been reduced four times in 2015.  Each time the cut was by 25 basis points, and the last move in December returned the rate level to its Great Recession low of 2.50%.  A fifth cut announced today had not been anticipated by most analysts and establishes a new record low.

According to a released statement from Reserve Bank of New Zealand Governor Wheeler, today’s action is a response to a weakening global economic prognosis since December, a slide in some measures of expected New Zealand inflation, the New Zealand dollar becoming 4% higher than officials had projected in their last full monetary review and inappropriately strong in light of weak New Zealand exports, and the risk that the slippage in expected inflation could become self-fulfilling.  In any case, monetary officials expect the rise of headline CPI inflation back to the central bank target to take longer than what they were imagining a couple of months ago.

Today’s statement warns that policy could ease further:  “further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.”  Today’s action exemplifies a trend lately in central banks loosening monetary policy to put downward pressure on their currency’s external value.  This lifts inflation and promotes the competitiveness of exports and import-competing goods.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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