Neil Sands
The Reserve Bank trimmed the Official Cash Rate (OCR) 25 basis points to 3.0% on Wednesday and signalled further rate cuts were likely as New Zealand’s long-awaited economic recovery has stalled.
The central bank’s OCR reduction was widely expected on financial markets, although meeting notes released by the bank’s monetary policy committee showed it considered a larger cut of 50 basis points, before settling on 25 by a majority of four votes to two.
Attention is now squarely focused on whether the Reserve Bank will continue the easing cycle it launched in August last year, when it cut the base rate from 5.5%.
“Further data on the speed of New Zealand’s economic recovery will influence the future path of the OCR,” Governor Christian Hawkesby said in a statement.
“If mediumterm inflation pressures continue to ease as expected, there is scope to lower the OCR further.”
Outlining the reasons for the slowdown in growth, which fell 1.1% in the 12 months to March, Hawkesby said businesses and households were spending less due to global economic uncertainty, falling employment, higher prices on some essentials, and declining house prices.
BNZ head of research Stephen Toplis described Hawkesby’s statement as “very dovish”, saying it increases the prospect of more rate cuts to kickstart the economy.
“We are adding an extra rate cut to our expected rate track,” he said. “In addition to the 25-point cut to 3.0% today, we maintain our view that a further 25-point reduction will be delivered in October.
“We now add to that an expectation a final 25 point cut at the November statement taking the low in the cash rate track to 2.5%. Our previous expectation was for a low of 2.75% with downside risk.”
The bank’s next monetary policy meeting is on October 8.
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