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.
Tags: New Zealand
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