The Reserve Bank’s monetary policy committee decided today to keep the official cashrate (OCR) at 1.0%.
The reasons, in short:
- Employment is maxed
- Inflation just below 2%
- Economic growth continued to slow – business investment weak, household spending soft
- Bank expects economy to stay subdued for the next 7 weeks (ie, the rest of the year)
- Trading partner growth has slowed
- Global trade & manufacturing weak
- Uncertainty continues
- NZ export commodity prices robust
- $NZ exchange rate a useful offset
- Domestic economic activity up next year
- Business investment to pick up
- Interest rates have to stay down “for a prolonged period”.
The full version of today’s reasoning:
“Employment remains around its maximum sustainable level while inflation remains below the 2% target midpoint but within our target range. Economic developments since the August statement do not warrant a change to the already stimulatory monetary setting at this time.
Economic growth continued to slow in mid-2019, reflecting weak business investment & soft household spending. We expect economic growth to remain subdued over the remainder of the calendar year. We will continue to monitor economic developments and remain prepared to act as required.
Trading-partner growth has also slowed. Growth in global trade and manufacturing is weak and uncertainty remains high, dampening global business investment. However, New Zealand’s export commodity prices have been robust, underpinning a positive terms of trade. The lower New Zealand dollar exchange rate this year is also providing a useful additional offset to the weaker global economic environment.
Domestic economic activity is expected to increase during 2020 supported by low interest rates, higher wage growth, and increased Government spending & investment. The low level of the cashrate has flowed through to lower lending rates more generally, which support spending & investment. Rising capacity pressures are projected to promote a pickup in business investment.
Interest rates will need to remain at low levels for a prolonged period to ensure inflation reaches the midpoint of our target range and employment remains around its maximum sustainable level. We are committed to achieving our inflation & employment objectives. We will add further monetary stimulus if needed.”
25 September 2019: Reserve Bank broadly happy with economy, has scope to stimulate further
8 August 2019: Cashrate cut by a third, gold & NZX indices up, $NZ down
Attribution: Bank release.