Further interest rate cuts likely: New Zealand central bank chief

Wellington, Oct 14 (IANS) New Zealand’s central bank cautiously indicated on Wednesday that it could cut interest rates again this year as it seeks to lift inflation towards 2 percent.

The Reserve Bank of New Zealand (RBNZ) has already made three cuts this year, lowering its official cash rate (OCR) from 3.5 percent in June to 2.75 percent last month, as consumer price index inflation dropped below its target range of 1 percent to 3 percent, reported Xinhua.

“Moderate wage inflation, spare capacity and the decline in inflation expectations towards 2 percent have been important factors behind the subdued rate of non-tradables inflation,” RBNZ Governor Graeme Wheeler said in a published speech to finance professionals in Auckland.

“Structural elements linked to falling technology costs and the impact of on-line retailing may also have played a role.”

Global economic growth was the weakest since 2009 and inflation had also been below target over the past few years in most of the 30 or so economies whose central banks pursued inflation targeting.

The New Zealand economy has been affected by several major shocks and adjustments in recent years including the Canterbury earthquakes and rebuild, the 2013 drought, the terms of trade hitting a 40-year high, the 70-percent fall in dairy prices and recent signs of a recovery, and the 60-percent drop in oil prices, he said.

Other pressures included large swings in the exchange rate, record net migration and labour force participation reaching historically high levels, and annual house price inflation in the biggest city of Auckland reaching 26 percent.

“All this has taken place in the context of unprecedented global monetary accommodation and, more recently, a significant slowdown in China and other emerging market economies,” said Wheeler.

“Recent economic indicators have been more encouraging. Some further easing in the OCR seems likely, but this will continue to depend on the emerging flow of economic data.”

At the same time, the RBNZ remained conscious of the impact that low interest rates could have on housing demand and its potential to feed into higher price inflation.

The RBNZ’s next OCR review is scheduled for October 29.

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