Data Flash (New Zealand) RBNZ reduces OCR to 6.00%
Key points
As expected unanimously by the market and market economists, the RBNZ cut its official cash rate by 25bps to 6%. The
RBNZ issued a short statement - reproduced below - setting out the rationale for this decision.
As in March, concerns about the global economy, and its likely downstream impact on domestic medium-term inflation
pressures, played a major role in the Bank's decision to ease. In a similar vein to its March Monetary Policy Statement,
the Bank noted that there were strong grounds for being cautious about further cuts, with some of the disinflationary
impact of weak global growth likely to be offset by the weak level of the NZD (if sustained) and the buoyant level of
New Zealand's export commodity prices, and with significant parts of the economy operating near to capacity.
Nonetheless, we expect the RBNZ to reduce the OCR by a further 25bps to 5.75% on 16 May. A 50bp cut can not be ruled
out, but would likely require weaker than expected international data, further significant downward revisions to
consensus forecasts of global growth or additional evidence of a significant downturn in domestic confidence indicators.
The key data releases over the next four weeks are the NAPM and payrolls data in the US, employment data in Australia,
and the NBNZ business survey, Household Labour Force Survey and Quarterly Employment Survey in New Zealand. The
performance of global equity markets will also be watched with interest. RBNZ Statement: Reserve Bank cuts OCR to 6%
Reserve Bank Governor Don Brash today cut the Official Cash Rate from 6.25 per cent to 6 per cent, but in doing so he
indicated that there were strong grounds for being cautious about further cuts.
Dr Brash said: "The main reason for cutting the OCR again is slowing growth in New Zealand's main trading partners. This
slowdown in global growth will have an adverse impact on demand for our exports, and is likely to reduce inflationary
pressures in New Zealand.
"However, world prices for our commodities remain robust, and the exchange rate has fallen back since March. These
unexpected developments, if they persist, could take much of the disinflationary sting out of weakening global demand.
"In addition, significant parts of the economy are operating near to capacity and the labour market is relatively tight.
"It is for these reasons that we are only cautiously moving the OCR in the same direction as official interest rates in
other countries. We will be assessing the emerging data carefully and will next review the OCR at the May Monetary
Policy Statement to be released on 16 May," Dr Brash concluded.
Darren Gibbs, Senior Economist, New Zealand,
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