- Paul Dales, Chief New Zealand economist at Capital Economics
The Reserve Bank of New Zealand lowered its official cash rate for the fourth time this year, saying the nation's economy needed support amid lower terms of trade, while inflationary pressures remained benign. In a widely expected move, RBNZ Governor Graeme Wheeler delivered a quarter percentage point rate cut to return OCR to its historic low level of 2.50%. A sharp appreciation of the New Zealand Dollar since the central bank last cut interest rates in September dashed every hope of getting inflation back to target levels. The Kiwi Dollar has gained around 5% on a trade weighted basis since August, and from $0.63 versus the Greenback to $0.67. A higher exchange rate dampens inflation by making imports cheaper and clouds the growth outlook as exports become less competitive. New Zealand's inflation climbed 0.4% in the third quarter, well below the central bank's target range of 1%-3%.
The central bank is likely to keep interest rates on hold for the time being, unless there are some significant global or local economic shocks. The RBNZ revised its annual GDP growth projection for the year ended March 2016 to 2.2% from 2.1% and its 2017 forecast from 2.5% to 2.9%.
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