Source: Radio New Zealand
Supplied / Reserve Bank
- RBNZ delivers expected 25 basis point rate to 2.25 percent
- It says patchy economic recovery justifies cut
- RBNZ expects inflation to ease towards 2 pct target next year
- Door left open for possible further cut
- Monetary committee voted 5-1 for a cut against hold
The Reserve Bank has cut the official cash rate to its lowest level in three years to support economic recovery.
The central bank dropped the rate by 25 basis points to 2.25 percent, the lowest since June 2022.
The bank’s rate setting committee says the economic recovery is patchy and slow but inflation is expected to ease next year, allowing another reduction.
The cut was expected and brings the OCR to a three-year low.
The cut was another split decision, which may be the last in the current cycle.
The central bank’s monetary policy committee (MPC) voted five to one for a smaller cut after October’s outsized 50 point reduction.
But it noted it did not want a delay in getting inflation back into the target band mid-point, and there was “low tolerance” in the achieving that.
“The committee noted that a reduction in the OCR would help to underpin consumer and business confidence and lean against the risk that the economy recovers more slowly than needed to meet the inflation objective.”
It said inflation – which is at the top of the RBNZ’s 1-3 percent target band – was expected to ease back given the spare capacity in the economy.
“Risks to the inflation outlook are balanced. Greater caution on the part of households and businesses could slow the pace of New Zealand’s economic recovery.
“Alternatively, the recovery could be faster and stronger than expected if domestic demand proves more responsive to lower interest rates. “
Door ajar for more cuts
Most economists expect the RBNZ has now finished its rate cutting, which has seen the OCR slashed by more than 3 percentage points from 5.5 percent in just over a year, but generally agreed that the RBNZ would leave itself flexibility if the economy continues to struggle.
The MPC said it looked hard between a cut now and staying on hold.
“Leaving the OCR unchanged at this meeting would provide the optionality to lower the OCR in the future if required.”
But it did not close the door to further easing.
“Future moves in the OCR will depend on how the outlook for medium-term inflation and the economy evolves.”
The next decision is due on 18 February, when the new governor Anna Breman will have taken up her role.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand