Reserve Bank of New Zealand Leaves Key 3.5% Interest Rate Unchanged

March 11, 2015

Monetary officials continue to encourage a shift in market expectations about its future policymaking.  As recently as two meetings ago in December, officials retained the view that excess capacity would be diminishing and that more rate hikes would be required.  The Official Cash Rate had been at 2.5% for three years following a 50-basis point cut in March 2011 but then was raised by 25 bps each in March 2014, April 2014, June 2014 and July 2014.  At the first meeting of 2015 in late January, the tightening bias was dropped, and officials said that next rate change could either downward or upward.  Two-sided risk was maintained in the today’s statement, but the surrounding text was more dovish than before, giving credence to market rates that attach greater probability to a cut than a hike.  The statement, like January’s, notes that near-term inflation is likely to be no higher than zero but, in addition, observes a recent decline in expected inflation and asserts the need for a “substantial” depreciation of the New Zealand dollar to secure a more stable external account footing.  The statement concludes, “our central projection is consistent with a period of stability in the OCR. However, future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.” 

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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