The Reserve Bank held the official cashrate at 1.5% on Wednesday, but said it might need to go lower “over time”.
Bank governor Adrian Orr said: “Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives. “
Domestic growth has slowed over the past year. While construction activity strengthened in the March quarter, growth in the services sector continued to slow. Softer house prices & subdued business sentiment continue to dampen domestic spending.
“The global economic outlook has weakened, and downside risks related to trade activity have intensified. A number of central banks are easing their monetary policy settings to support demand. The weaker global economy is affecting New Zealand through a range of trade, financial & confidence channels.
“We expect low interest rates & increased Government spending to support a lift in economic growth & employment. Inflation is expected to rise to the 2% midpoint of our target range, and employment to remain near its maximum sustainable level.
“Given the downside risks around the employment & inflation outlook, a lower OCR may be needed.”
Attribution: Bank release.