The Reserve Bank announces 2% rate unchanged - but for how long?
On the 22nd September, The Reserve Bank released a statement that the Official Cash Rate (OCR) was to remain at an all time low 2.0%, despite concerns of the high New Zealand dollar and low inflation. Governor Graeme Wheeler, who released the statement said “House price inflation remains excessive—posing concerns for financial stability.” Whilst this decision may have been expected, the only wonder is whether there will be a further one or two cuts to the OCR. ASB bank has predicted for the nation to be hit with a cut to 1.75% in November and potentially a further cut to 1.5% in early 2017. This is the only way The Reserve Bank can make an impact on the NZ dollar which is currently set too high according to ANZ economists. New Zealand’s low interest rates are adding upward pressure to the country’s exchange rate which in turn places pressure on the export and import industries. With added poor global inflation, the trade sector continues to see negative inflation. According to Wheeler, a decline in the exchange rate is needed but despite The Reserve Bank’s low rates, banks are reluctant to move their rates lower. Although there has been indication by the Reserve Bank that interest rates are at an all time record low, they are maintaining that an increase to property prices is “excessive”. The governor concluded the statement by saying that projections conducted by The Reserve Bank indicate that to ensure that future inflation is settled evenly on the target range, further policy easing is necessary. The Reserve Bank is due to meet again on 10 November.