By Rebecca Howard
Sept. 25 (BusinessDesk) - The Reserve Bank of New Zealand kept interest rates on hold at 1 percent as expected and said
there is room to cut rates further if necessary. The New Zealand dollar rose.
New information since the August monetary policy statement did not warrant a significant change to the outlook and
"there remains scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain our
inflation and employment objectives,” the central bank said. The RBNZ had surprised markets in August when it cut the
official cash rate by 50 basis points as most economists had expected a 25 basis point cut.
All 16 economists polled by Bloomberg had expected the rate to remain on hold this week. Market pricing had pointed to
about a 25 percent chance of a cut.
The New Zealand dollar lifted after the statement and was trading at 63.45 US cents versus 63.03 US cents just prior to
According to a summary record of meeting, the bank's monetary policy committee noted that employment remains close to
its maximum sustainable level, but consumer price inflation remains below the 2 percent target mid-point.
New Zealand's central bank now has a dual mandate to support maximum sustainable employment and keep annual inflation
between 1 percent and 3 percent over the medium term, with a focus on the mid-point. Annual inflation is currently
running at 1.7 percent.
The central bank noted that global long-term interest rates remain near historically low levels, consistent with low
expected inflation and low growth rates into the future. Consequently, New Zealand interest rates can be expected to be
low for longer. Also, the reduction in New Zealand's cash rate has reduced retail lending rates for households and
businesses and has reduced the New Zealand dollar exchange rate.
The committee members anticipate a positive impulse to economic activity over the coming year from monetary and fiscal
“While GDP growth had slowed over the first half of 2019, impetus to domestic demand is expected to increase,” the
Household spending and construction activity are supported by low interest rates, while business investment should lift
in response to demand pressures.
Overall, the committee expected increasing demand to keep employment near its maximum sustainable level. Rising capacity
pressures and increasing import costs, higher wages, and pressure on margins are expected to lift inflation gradually to
However, it also noted several key uncertainties, including global trade and other geopolitical tensions and low
business confidence. Also, while fiscal policy is expected to lift domestic demand during the coming year, any increase
in government spending could be delayed or it could have a smaller impact on domestic demand than assumed.