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New Zealand Cuts Key Rate By 50 Bps

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New Zealand's central bank reduced its key rate by 50 basis points to underpin economic growth and revive inflation.

The Monetary Policy Committee of Reserve Bank of New Zealand headed by Adrian Orr, on Wednesday, cut the official cash rate by 50 basis points to 1.00 percent. Economists had forecast a quarter point reduction.

The bank had earlier reduced the rate by 25 basis points in May, which was the first cut in more than two years.

Policymakers said employment and inflation would likely ease relative to central bank's targets in the absence of additional monetary stimulus.

"Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level," the bank said in a statement.

Given the committee's clear willingness to reduce the OCR and the view that there is some further economic softness to come in the near term, Dominick Stephens, Chief Economist at Westpac expects another 25 basis point cut in November.

The MPC noted that growth headwinds are rising. Further, heightened uncertainty and falling global trade continued to weigh on growth of trading partners.

New Zealand's low interest rate and increased government spending will support a pick-up in demand over the coming year, the bank said. Business investment is forecast to climb given low interest rates and some ongoing capacity constraints.

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