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RBNZ cuts cash rate, expects further easing

RBNZ cuts cash rate, expects further easing

(12 June 2015 – New Zealand) Weaker dairy price prospects, recent petrol price increases and a fall in export commodity prices since mid-2014 have all contributed to the Reserve Bank of New Zealand (RBNZ) reducing the official cash rate (OCR) by 25 basis points to 3.25 percent.

The decision, on 11 June was announced by RBNZ governor Graeme Wheeler, who hinted at further easing in the near future depending on emerging data.

The statement said the New Zealand economy is growing at an annual rate around three percent, supported by low interest rates, high net migration and construction activity.

“Inflation has been low due to falling import prices and the strong growth in the economy’s supply potential.

“Wage inflation and inflation expectations have been subdued.

The RBNZ said with the fall in commodity prices and the expected weakening in demand, the exchange rate has declined from its recent peak in April, but remains overvalued.

“A further significant downward adjustment is justified.

“In light of the forecast deterioration in the current account balance, such an exchange rate adjustment is needed to put New Zealand’s net external position on a more sustainable path,” the statement said.

House prices in Auckland continue to increase rapidly, and increased supply is needed to address this.

The proposed loan-to-value ratio (LVR) measures and the Government’s tax initiatives planned for 1 October 2015 should ease the impact of investor activity.

A reduction in the OCR is appropriate given low inflationary pressures and the expected weakening in demand, and to ensure that medium term inflation converges towards the middle of the target range. 

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