Reserve Bank of New Zealand Tightening Kept on Pause

December 11, 2014

Rate normalization began earlier this year with 25-basis point hikes of the New Zealand official cash rate in March, April, June and July.  Like their two earlier meetings, officials did not tighten further at the final scheduled policy review of 2014, preferring to keep the OCR at 3.5%.  A released statement observes benign inflation currently of 1.0% and notes such disinflationary forces as the firm kiwi, falling oil prices, and global disinflation.  Nonetheless, officials projected falling unused capacity and an eventual rise of inflation to the target mid-point of 2.0%.  They still expect further rate hikes to become necessary but in the latter part of the forecast time period rather than soon.  The OCR’s low point of 2.5% was hit twice, first during the 12 months to April 2010, and again after a 50-bp cut in March 2011 and maintained until the first of the four aforementioned tightenings in March of this year.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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