For the second consecutive month, the Reserve Bank of New Zealand has reduced its official cash rate by 25 basis points.
Graeme Wheeler, governor of New Zealand’s central bank, said the rate cut – which takes the rate to 3.0 per cent – is due to the softening in the country’s economic outlook and low inflation.
“New Zealand’s economy is currently growing at an annual rate of around 2.5 per cent, supported by low interest rates, construction activity and high net immigration,” he said.
“However, the growth outlook is now softer than at the time of the June statement. Rebuild activity in Canterbury appears to have peaked, and the world price for New Zealand’s dairy exports has fallen sharply.”
Mr Wheeler said headline inflation is currently below the central bank’s target range of one per cent to three per cent, due largely to previous strength in New Zealand’s dollar and a large decline in global oil prices.
“Annual CPI inflation is expected to be close to the midpoint of the range in early 2016, due to recent exchange rate depreciation and as the decline in oil prices drops out of the annual figure. A key uncertainty is how quickly the exchange rate pass-through will occur,” he said.
House prices in Auckland are continuing to increase rapidly, but inflation generally remains low elsewhere, according to Mr Wheeler.
“Increased building activity is underway in the Auckland region, but it will take some time for the imbalances in the housing market to be corrected,” he said.