- Graeme Wheeler, RBNZ Governor
The Reserve Bank of New Zealand said it may need to slash interest rates further as persistently plunging oil prices and a weaker global growth outlook is likely to keep low inflation for longer. The central bank left its interest rate unchanged at 2.5%, after cutting four times in 2015. In December, when the RBNZ slashed the official cash rate back to an all-time low 2.5%, the central bank said that it expected the reach its inflation target at the current interest rate settings. However, last week's data showed the annual inflation change eased to just 0.1%, the weakest in more than 15 years, whereas the RBNZ targets annual inflation of between 1%-3%. Plunging prices for dairy products, New Zealand's biggest export, have also dented economic growth.
Financial markets are now pricing a 64% chance of a rate cut by June, compared with 26% at the beginning of the year. However, RBNZ Governor Graeme Wheeler has been reluctant to cut rates further as Auckland's property boom spreads, posing a threat to financial stability, and as economic growth shows signs of rebounding from a mid-year dip. Wheeler said there are many risks surrounding the outlook, including the prospects for global growth, particularly relating to China, as well as market conditions. The central bank will be also monitoring dairy prices, immigration and developments in the housing market.
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