Reserve Bank of New Zealand in Easing State of Mind

July 23, 2015

Monetary officials at the RBNZ are pushing for easier monetary conditions through a combination of lower interest rates and additional New Zealand dollar depreciation.  A statement from Governor Wheeler after the second straight policy meeting to cut the Official Cash Rate (OCR) proclaimed that the economic outlook now looks somewhat softer than imagined at the June meeting, and concludes,

The New Zealand dollar has declined significantly since April and, along with lower interest rates, has led to an easing in monetary conditions. While the currency depreciation will provide support to the export and import competing sectors, further depreciation is necessary given the weakness in export commodity prices.  A reduction in the OCR is warranted by the softening in the economic outlook and low inflation. At this point, some further easing seems likely.

Inflation lies currently below the 1-3% target but is projected to rise near to 2% by early 2016, buoyed in part part by the pass-through of recent kiwi depreciation to import prices.

Half of the four 25-basis point OCR hikes from March 2014 to July 2014 have now been reversed.  The Official Cash Rate now drops to 3.0%, 50 basis points above the 2.5% level that prevailed for three years from March 2011 until March 2014.  The next policy meeting is scheduled for September 10.

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



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