The Reserve Bank of New Zealand on Thursday lowered its Official Cash Rate by 25 basis points, to 3.00 percent from 3.25 percent.
That was in line with expectations and marked the second straight month 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, with only a gradual pickup in activity forecast. Recent developments in China and Europe led to heightened uncertainty and increased financial market volatility. Particular uncertainty remains around the impact of the expected tightening in U.S. monetary policy,” RBNZ Governor Graeme Wheeler said in a statement accompanying the decision.
One of the biggest factors in the current global landscape, the bank said, was the slowdown in growth as GDP eased to 2.5 percent – despite accommodative interest rates and high net immigration.
In addition, the world price for dairy exports has fallen sharply, the bank noted.
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.
“Annual CPI inflation is expected to be close to the midpoint of the range in early 2016, due to recent exchange rate depreciation and as the decline in oil prices drops out of the annual figure. A key uncertainty is how quickly the exchange rate pass-through will occur,” Wheeler said.
The bank justified the rate cut, pointing to falling commodity prices and a decline in demand.
The board also pointed to the easing NZ dollar, adding that further depreciation is to be expected.
“The New Zealand dollar has declined significantly since April and, along with lower interest rates, has led to an easing in monetary conditions. While the currency depreciation will provide support to the export and import competing sectors, further depreciation is necessary given the weakness in export commodity prices,” Wheeler said.
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 economic outlook and low inflation. At this point, some further easing seems likely,” Wheeler said.
The material has been provided by InstaForex Company – www.instaforex.com