New Zealand Holds Rate At Record Low; Hints At Easing To Support Growth

The New Zealand central bank left its key interest rate unchanged at a record low but hinted a rate cut over time to underpin subdued economic growth.

The Monetary Policy Committee of Reserve Bank of New Zealand, on Wednesday, maintained the official cash rate at 1.50 percent. The decision came in line with expectations. The bank had last lowered the rate in May, by a quarter point.

“Given the downside risks around the employment and inflation outlook, a lower OCR may be needed,” the bank said in a statement.

The bank expects low interest rate together with increased government spending to lift economic growth and employment. Inflation is forecast to climb to the 2 percent mid-point of the target range.

The bank noted that global economic outlook has weakened, and downside risks related to trade activity have intensified. The weaker global growth will affect domestic economy through trade, financial and confidence channels, the bank said.

Policymakers observed two largely offsetting developments affecting the outlook for domestic growth: softer house price inflation and additional fiscal stimulus.
Recent softer house prices, if sustained, are likely to dampen household spending, the bank said.

The committee discussed the merits of lowering the OCR at this meeting, but concluded that a lower rate may be needed over time.

Overall the dovish tone of today’s statement suggests the Bank will cut rates to 1.25 percent at its next meeting in August, Ben Udy, an economist at Capital Economics, said. What’s more, there is a growing risk that this may not be the last cut this year, the economist added.

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