New Zealand Official Cash Rate Held at 3.0%

December 9, 2010

Like the Bank of Korea, New Zealand’s central bank has so far implemented just two rate increases of 25 basis points each, which were implemented in June and July of this year.  Today, as at the previous interest rate policy meetings, no further change in rates was made.  A statement from the Reserve Bank of New Zealand (RBNZ) moreover signaled

Interest rates are now projected to rise to a more limited extent over the next two years than signaled in the September Statement. …While interest rates are likely to increase modestly over the next two years, for now it seems prudent to keep the OCR low until the recovery becomes more robust and underlying inflationary pressures show more obvious signs of increasing.

The latest statement revises downward the near-term GDP growth outlook and asserts that a significant rise of the kiwi “is inhibiting the rebalancing of economic activity towards the tradable sector.”  Plenty of spare capacity still exists, and a tax-induced near-term rise in headline CPI inflation is unlikely to impact expected inflation or wage-setting behavior.  Officials remain optimistic about longer term growth, partly because they foresee further rises in export commodity prices, which already are “very high.”  The statement urges the government to cut its fiscal deficit and thereby ease upward pressures on interest rates and the currency.

Between July 2008 and April 2009, the official cash rate was cut by 575 basis points in seven moves from 8.25% to 2.50%.

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



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