Back in October, RBNZ governor Graeme Wheeler said some reduction in NZ’s official cash rate (OCR) was “likely” but as with any central banker he said such a move would “depend on the emerging flow of economic data”. The data has turned out to be supportive of such a reduction because the RBNZ moved to reduce the OCR by 0.25% to 2.50%. It said CPI inflation is below its 1.00%-3.00% target range, mainly as a result of the NZ currency strength and the lower global price of oil. Strong net immigration had increased the supply of labour and combined with the reduction in GDP growth through 2015, had increased spare capacity and unemployment. This was expected to be temporary as “a recovery in export prices, the recent lift in confidence, and increasing domestic demand from the rising population are expected to see growth strengthen over the coming year.” However in light of current and expected conditions, the Bank said “monetary policy needs to be accommodative to help ensure that future average inflation settles near the middle of the target range.” This is the fourth reduction in New Zealand’s cash rate this year.
