The Reserve Bank reduced the official cashrate by 25 basis points to 1.5% today.
It’s the first change in the rate since 2016, when the bank made 3 cuts, each of 25 points. It also made 3 cuts in 2015, all 25-pointers, from a starting rate of 3.5% in April 2015.
The bank’s monetary policy committee decided today a lower rate was necessary to support the outlook for employment & inflation consistent with its policy remit.
Bank governor Adrian Orr said: “Global economic growth has slowed since mid-2018, easing demand for New Zealand’s goods & services. This lower global growth has prompted foreign central banks to ease their monetary policy stances, supporting growth prospects. However, there is uncertainty about the global economic outlook. Trade concerns remain, while some other indicators suggest trading-partner growth is stabilising.
“Domestic growth slowed from the second half of 2018. Reduced population growth through lower net immigration, and continuing house price softness in some areas, has tempered the growth in household spending. Ongoing low business sentiment, tighter profit margins and competition for resources has restrained investment.
“Employment is near its maximum sustainable level. However, the outlook for employment growth is more subdued and capacity pressure is expected to ease slightly in 2019. Consequently, inflationary pressure is projected to rise only slowly.
“Given this employment & inflation outlook, a lower official cashrate now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates.”
Attribution: Bank release.