The Reserve Bank of New Zealand has left its official cash rate unchanged at a record low 1% but like its Australian counterpart, left open the chance of further cuts to try and kick start a meandering economy.
And like RBA Governor, Phillip Lowe said in a speech on Tuesday night in Armidale about interest rates remaining lower in Australia for “an extended period of time”, the RBNZ expects interest rates will remain longer for longer to help support the Kiwi economy.
The RBNZ’s monetary policy committee said in a statement that data since the August cut of a surprise 0.5% “did not warrant a significant change to the monetary policy outlook.”
“Keeping the OCR at low levels is needed to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level. There remains scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain our inflation and employment objectives,” the post-meeting statement concluded.
The decision didn’t surprise markets after the shock of the 0.50% cut in August, economists were expecting the RBNZ to sit pat at this meeting and for the rest of 2019.
Looking at the state of the NZ economy, the RBNZ said that “Employment is around its maximum sustainable level, and inflation remains within our target range but below the 2 percent mid-point.
“Global trade and other political tensions remain elevated and continue to subdue the global growth outlook, dampening demand for New Zealand’s goods and services. Business confidence remains low in New Zealand, partly reflecting policy uncertainty and low profitability in some sectors, and is impacting investment decisions.
“Global long-term interest rates remain near historically low levels, consistent with low expected inflation and growth rates into the future. Consequently, New Zealand interest rates can be expected to be low for longer.
“Low-interest rates and increased government spending are expected to support a pick-up in domestic demand over the coming year. Household spending and construction activity are supported by low-interest rates, while the incentive for businesses to invest will grow in response to demand pressures,” the RBNZ statement added.