Reserve Bank Governor Graeme Wheeler made the announcement, which is likely to have been prompted by the low inflation New Zealand is now experiencing of just 0.4 per cent. The trade-weighted index rose as high as 77.28 and was recently at 77.02, from 76.21 before the statement.
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The central bank has pared a collective 1.25 percent from its benchmark in the last 12 months, lowering the rate in five of the last nine meetings after six straight sessions with no change.
Traders and economists had been expecting a cut. “A decline in the exchange rate is needed”.
As such, the Reserve Bank said monetary policy will continue to be accommodative – and further cuts to the OCR are likely to come.
And while the bank said “annual inflation is expected to rise from the December quarter, reflecting the policy stimulus to date, the strength of the domestic economy, reduced drag from tradables inflation, and rising non-tradables inflation”, interest rates will need to be cut again this year. While the RBNZ will retain a positive view towards domestic growth prospects and still see financial stability risks from housing (mitigated to a degree by recent macro-prudential policy measures), the reality remains that the strong NZD is making it quite hard for the Bank to meet its inflation objective.
The New Zealand dollar rose on the statement and was trading at 0.7292.
The domestic economy remained robust, underpinned by strong migration and tourism, construction activity, and low interest rates.
Mr. Wheeler said Thursday that house price inflation remains excessive, but the planned macroprudential measures should help mitigate financial system risks.
Graeme Wheeler isn’t ruling out the possibility of further cuts in the future.
According to the RBNZ, long-term inflation expectations are well-anchored at 2%, but sustained weakness in the headline inflation rate risks a further decline in inflation expectations.
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“The prospects for global growth and commodity prices remain uncertain, political risks are also heightened”. This was in line with the consensus forecast with a unanimous call among major banks for rates to be cut by this margin.
