New Zealand Gets 50 Basis Point Rate Cut to 2.5%

March 9, 2011

The Reserve Bank of New Zealand Reduced its Official Cash Rate by 50 basis points to 2.5%, returning to the cyclical low maintained for 14 months following 575 basis points of ease between July 2008 and end-April 2009.  A statement released by RBNZ Governor Bollard projects “quite weak” economic growth in the first half of 2011 following last month’s devastating Christchurch earthquake, and it notes that growth had been “much weaker than expected through the second half of 2010.”  No mention is made in the statement about inflationary conditions or prospects.  Today’s action is described a a pre-emptive attempt “to lessen the economic impact of the earthquake and guard against the risk of this impact becoming especially severe.”  If subsequent information points to a less severe impact than feared, policy will be modified.  In any case, officials foresee a “very large reconstruction program by 2012” lasting for “some years” and producing “a period of relatively strong activity.”  When that happens, “the current monetary policy accommodation will need to be removed.”  This is an extraordinary central bank statement from several respects, especially the omission of any comment about inflation or the New Zealand dollar, which has been weak.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.