NZ central bank cuts rates

The Reserve Bank of New Zealand has reduced its official cash rate by 25 basis points to 3.25 per cent, indicating congruence in cross-Tasman monetary policy.

The move follows yesterday’s board meeting and is due to low inflationary pressures and the expected weakening in demand.

“The New Zealand economy is growing at an annual rate around three per cent, supported by low interest rates, high net migration and construction activity, and the decline in fuel prices,” governor Graeme Wheeler said.

“However, the fall in export commodity prices that began in mid-2014 is proving more pronounced.

“The weaker prospects for dairy prices and the recent rises in petrol prices will slow income and demand growth and increase the risk that the return of inflation to the mid-point would be delayed.”

Mr Wheeler said the exchange rate remains overvalued, even though the fall in commodity prices and expected weakening in demand has seen it decline from its recent peak in April.

“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.

“We expect further easing may be appropriate. This will depend on the emerging data,” Mr Wheeler concluded.

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Emma Ryan

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