Reserve Bank of New Zealand: No Rate Change this Time but More Ease Possible in the Future

September 22, 2016

New Zealand’s Official Cash Rate, which had been cut this year by 25 basis points each in March and August, was left at the record low of 2.0%. There also had been four 25-bp reductions during 2015 and four increases of like amount during 2014. A statement released by Governor Wheeler today reiterated that the kiwi is too high.

The trade-weighted exchange rate is higher than assumed in the August Statement. Although this may partly reflect improved export prices, the high exchange rate continues to place pressure on the export and import-competing sectors and, together with low global inflation, is causing negative inflation in the tradables sector. A decline in the exchange rate is needed.

To blunt upward pressure on the kiwi and lift inflation toward target, “monetary policy will continue to be accommodative. Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.”

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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