New Zealand Official Cash Rate Kept at 2.5%

April 28, 2010

New Zealand’s official cash rate (OCR) has been at 2.5% for a full year since a 50-basis point cut in April 2009.  The decision to leave the OCR at 2.5% met expectations, but the statement from monetary officials was less hawkish than after the prior meeting in several respects.

  • Less was said about private domestic demand than in the previous statement, and the few remarks about investment and households were downbeat.
  • Previous statements said rate hikes were likely to begin “around the middle of 2010,” whereas this one uses a vaguer timing, “over coming months.”
  • Rate tightening is now conditional, that is “provided the economy continues to evolve as projected.”  No such conditionality was expressed in the last statement.
  • Officials reiterated that the OCR will not need to climb to levels seen in previous cycles.

The OCR crested at 8.25% in the last tightening cycle and held that level for a full year until July 2008.  Seven cuts between then and April 2009 lowered the OCR by 575 bps in all.  Business sentiment rose 7 points in April to 49.5.  The final quarter of 2009 saw GDP accelerate to 0.8%, but is being powered mainly by higher commodity export prices and Asian demand.  Consumer price inflation held steady at 2.0% last quarter, well below the 5.1% peak in the third quarter of 2008.  GDP had contracted five straight quarters through 1Q09.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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