New Zealand Monetary Policy

June 11, 2009

The Reserve Bank’s cash rate was held at 2.5%, marking the first policy meeting since 2Q08 not to vote a rate cut.  However, the rate bias remains downward. A statement from New Zealand monetary officials said the cash rate would likely be at 2.5% or lower until “the latter part of 2010.”  Growth and inflation risks are downwardly skewed.  GDP is projected to drop in 2Q and 3Q, and CPI inflation is projected at below the 1-3% target range in 2H09 and within, but not above, target as late as 1Q11.  Some “upside opportunities” for activity have arisen such as a pick-up in the housing market, but downside risks persist, such as the impact of stronger recent kiwi appreciation than officials would have liked.  The statement subtly complains that short-term market rates have not adequately responded to the 575 basis points of reduction in the cash rate, even as longer-term rates are now moving up.  The cash rate was lowered by 25 basis points last July, 50 bps in September, 100 bps in October, 150 bps each in December and January, and 50 bps each in March and April.  The kiwi closed Wednesday 25.5% above its 2009 low of $0.4896 on March 4th.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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