Reserve Bank of New Zealand Policy Pause Continues

December 5, 2012

New Zealand’s Official Cash Rate has been at 2.5% since March 2011.  In leaving that reference rate unchanged after today’s last policy meeting of 2012, officials at the RBNZ released a statement that

  • Concluded that the current stance remains appropriate.
  • Identified both upside and downside price risks that it is monitoring around a baseline forecast that inflation will “rise gradually towards the 2% target midpoint.”
  • Downgraded economic growth to “has slowed in recent months” from a characterization of “expanding at a modest pace” after the prior two meetings.
  • Said the “high New Zealand dollar continues to be a significant headwind.”  The kiwi is presently 69% stronger than its record low of USD 0.4897 set on March 4, 2009.

Monetary policy was eased extensively and substantially in the Great Recession, falling in seven moves from 8.25% prior to July 2008 to 2.25%, same at the present level in April 2009.  Only three subsequent changes have occurred, hikes of 25 basis points each at successive meetings in June and July 2010 and a cut of 50 bps in March 2011 to blunt the impact of the devastating earthquake on the South Island.  Reconstruction of that area still “continues to gather pace.”  Over the coming two years, central bank officials look for GDP growth “to accelerate to between 2.5% and 3% per annum.”

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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