Picture: ANDREW KACIMAIWAI
The Reserve Bank of New Zealand (RBNZ) has again cut its official cash rate, to 4.75 per cent, its second easing of policy in as many meetings.
“Economic activity in New Zealand is subdued, in part due to restrictive monetary policy,” the RBNZ said in a statement released on Wednesday (October 9).
“Business investment and consumer spending have been weak, and employment conditions continue to soften. Low productivity growth is also constraining activity.”
The bank said it had weighed up a 25-basis point cut against a 50-point cut and went with the 50-point cut to maintain low inflation and greater stability in productivity, jobs, employment, interest rates and the exchange rate.
The bank’s monetary policy committee says that domestic activity is weak with increasing excess capacity leading to lower inflationary pressure in the New Zealand economy.
“Economic growth is weak, in part because of low productivity growth but mostly due to weak consumer spending and business investment,” the bank says.
“High-frequency indicators point to continued subdued growth in the near term.”
The RBNZ expects the labour market to ease further as job numbers and vacancy ads continue to fall.
It also points to weak house price growth, lower immigration and ongoing spending restraint as factors for weak demand which, in turn, is restraining inflation.
“…. while wholesale and bank interest rates have declined, financial conditions remain restrictive and credit demand remains subdued,” the RBNZ noted.
GLOBAL OUTLOOK
The RBNZ noted that while some exporters, such as dairy producers, have benefited from better export prices, the global economic growth is less optimstic.
The bank statement says the outlook for the United States and China is for growth to slow while geopolitical tensions are “a significant headwind” for world economic activity.
It also says conflict in the Middle East could pose “significant risks” to global economic activity and energy prices.
“Should conflict escalate, oil prices and shipping costs could rise, and adverse investor sentiment could trigger asset price corrections and tighter financial conditions,” the bank says.
“Uncertainty about the effectiveness of recent policy actions in China also posed downside risks to New Zealand’s export growth, as well as export and import prices,” the RBNZ statement says.
“Heightened uncertainty around the US elections, and the implications for US trade and fiscal policies, could also be significant for international financial markets and global economic activity.”
