The Reserve Bank of New Zealand on Thursday lowered its Official Cash Rate by 25 basis points, to 2.75 percent from 3.00 percent.
That was in line with expectations and marked the third straight meeting with a rate cut. That followed seven consecutive months with no change.
The OCR had been at a record low 2.50 percent since March 10, 2011 as the country dealt with the global economic slowdown.
It wasn’t until last March that the central bank felt confident enough in a recovery that it lifted the OCR.
“Global economic growth remains moderate, but the outlook has been revised down due mainly to weaker activity in the developing economies. Concerns about softer growth, particularly in China and East Asia, have led to elevated volatility in financial markets and renewed falls in commodity prices. The US economy continues to expand. Financial markets remain uncertain as to the timing and impact of an expected tightening in US monetary policy,” RBNZ Governor Graeme Wheeler said in a statement accompanying the decision.
One of the biggest factors in the decision to cut the OCR was a decline in export prices, the bank said, as well as a decline in the exchange rate – all of which has slowed the New Zealand economy to a growth rate of around 2 percent.
Low inflation has allowed the bank to take action to spur the economy – particularly since the headline figure is beneath the bank’s target range of 1 to 3 percent.
“Headline CPI inflation remains below the 1 to 3 percent target due to the previous strength in the New Zealand dollar and the halving of world oil prices since mid- 2014. Headline inflation is expected to return well within the target range by early 2016, as the earlier petrol price decline drops out of the annual inflation calculation, and as the exchange rate depreciation passes through into higher tradables prices,” Wheeler said.
The bank justified the rate cut, pointing to the uncertainty surrounding the global recovery, as well as the New Zealand dollar – and its effect on export prices.
The RBNZ added that further easing may be appropriate, depending on the results of forthcoming economic data.
“A reduction in the OCR is warranted by the softening in the economy and the need to keep future average CPI inflation near the 2 percent target midpoint. At this stage, some further easing in the OCR seems likely. This will depend on the emerging flow of economic data,” Wheeler said.
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