Low inflation takes pressure off OCR

Low inflation takes pressure off OCR - 30 October

The Reserve Bank of New Zealand (RBNZ) today held the OCR at 3.5%, as the lower than expected inflation backdrop means the OCR can be held for longer, and even cut in the future, say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive John Walley says, “Lower inflation pressure could mean slowing, stopping or reversing the RBNZ's long signalled policy rate changes. Any action or anticipation of such action will help reduce pressure on our already overvalued currency, which the RBNZ once again characterised as “unjustified and unsustainable”."

“If domestic inflation pressure remains low and economic growth slows, the RBNZ should seriously consider policy rate reductions to promote growth, particularly for exports, and bring interest rates closer to those in the rest of the world, thereby taking pressure off our currency.”

“As for asset price inflation, recent comments from the RBNZ indicate that the macroprudential measures are working in the housing sector, providing more room to move on interest rates to lower the currency.”

“Greater use of macroprudential tools is important for controlling financial stability while decreasing our reliance on the blunt tool of the OCR, which can have damaging effects in the tradable sector – we encourage the RBNZ to continue work in this area.”

“It feels like forever that the tradable sector has been doing the heavy lifting on inflation, continuing to do this is not sustainable in the long run. Action now from the RBNZ could help better balance our economy, compensating for soft commodity prices and returns for other exporters.”

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