New Zealand Holds Rates at 1%, Signals More Easing If Needed


The Reserve Bank of New Zealand left its official cash rate/OCR unchanged at a record low of 1 percent at its September 2019 meeting, as widely expected. The move follows a 25 bps cut in the previous meeting. Policymakers said there remains scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain inflation and employment objectives.

Reserve Bank of New Zealand policy statement:

The Official Cash Rate (OCR) remains at 1.0 percent. The Monetary Policy Committee agreed that new information since the August Monetary Policy Statement did not warrant a significant change to the monetary policy outlook.

Employment is around its maximum sustainable level, and inflation remains within our target range but below the 2 percent mid-point.

Global trade and other political tensions remain elevated and continue to subdue the global growth outlook, dampening demand for New Zealand’s goods and services. Business confidence remains low in New Zealand, partly reflecting policy uncertainty and low profitability in some sectors, and is impacting investment decisions.

Global long-term interest rates remain near historically low levels, consistent with low expected inflation and growth rates into the future. Consequently, New Zealand interest rates can be expected to be low for longer.

The reduction in the OCR this year has reduced retail lending rates for households and businesses, and eased the New Zealand dollar exchange rate.

Low interest rates and increased government spending are expected to support a pick-up in domestic demand over the coming year. Household spending and construction activity are supported by low interest rates, while the incentive for businesses to invest will grow in response to demand pressures.

Excerpts from the Summary Record of Meeting:

The Committee noted that employment remains close to its maximum sustainable level but consumer price inflation remains below the 2 percent target mid-point.

The Committee members discussed the initial impacts of reducing the OCR to 1.0 percent in August. They were pleased to see retail lending interest rates decline, along with a depreciation of the exchange rate.

The Committee noted that, while GDP growth had slowed over the first half of 2019, impetus to domestic demand is expected to increase. Household spending and construction activity are supported by low interest rates, while business investment should lift in response to demand pressures.

The Committee discussed the long and variable lags between monetary policy decisions and outcomes.

Global trade and other geopolitical tensions remain elevated and continue to subdue the global growth outlook, dampening demand for New Zealand’s goods and services.

Business confidence remains low in New Zealand, partly reflecting policy uncertainty and low profitability in some sectors, and is affecting investment decisions.

Fiscal policy is expected to lift domestic demand over the coming year. However, any increase in government spending could be delayed or it could have a smaller impact on domestic demand than assumed.

The Committee agreed that developments since the August Statement had not significantly changed the outlook for monetary policy. They reached a consensus to keep the OCR at 1.0 percent and that, if necessary, there remains scope for more fiscal and monetary stimulus.


New Zealand Holds Rates at 1%, Signals More Easing If Needed


RBNZ l Rida Husna | rida@tradingeconomics.com
9/25/2019 2:21:40 AM