The Reserve Bank of NZ blinked first and has cut its official cash rate by a quarter of a point to 1.50% at which level it is now on par with the Reserve Bank of Australia’s key rate.
The RBNZ rate is now the lowest it has been (as was the previous level of 1.75%).
Economists had been wondering which of the RBA and RBNZ would be the first to cut rates at their policy meetings this week.
The RBA baulked on Tuesday, but made clear it all depends on the continuing health of the jobs market (that has been its message for a couple of months, but the bank made it more clearer in yesterday’s speech to help the market doubters who had refused to understand the message in previous statements and speeches).
The RBNZ said in a statement on Wednesday that the cut in the official cash rate was “necessary to support the outlook for employment and inflation consistent with its policy remit.”
“Domestic growth slowed from the second half of 2018. Reduced population growth through lower net immigration, and continuing house price softness in some areas, has tempered the growth in household spending. Ongoing low business sentiment, tighter profit margins, and competition for resources has restrained investment” the RBNZ statement read.
“Employment is near its maximum sustainable level. However, the outlook for employment growth is more subdued and capacity pressure is expected to ease slightly in 2019. Consequently, inflationary pressure is projected to rise only slowly.
“Given this employment and inflation outlook, a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates,” the statement concluded.
