- Graeme Wheeler, RBNZ Governor
Reserve Bank of New Zealand Governor Graeme Wheeler said further monetary policy easing is likely to be required to underpin economic growth and to return inflation to the central bank's 2% target. The Governor said that the nation's economy is expanding below its potential due to falling commodity prices and low consumer inflation. The inflation rate is currently running at 0.3%. The central bank expects inflation to be close to 2% by the first half of 2016, Wheeler said. Yet, growing at around 2.5% a year, the economy is supported by high migration, robust employment, construction and services sectors. Hence, large interest rate cuts would only be needed in case the economy moves into recession. Last week the RBNZ slashed its official cash rate to 3% due to a slowing economy and weak inflation. A further 25 basis point rate cut is anticipated in the September 10 monetary policy statement with another cut to 2.5% is expected by the end of the year.
Wheeler added that the New Zealand Dollar has lost 14% on a trade-weighted basis and 15% versus the US counterpart since mid-April, pressured by lower rates, falling dairy prices, some moderation in demand growth, and the strengthening in the US Dollar and Sterling. Yet, further depreciation of the Kiwi Dollar is necessary given the weakness in export commodity prices.
© Dukascopy Bank SA