New Zealand Rate Cut Serves as Warning to Fed

New Zealand, home to 4.5 million people and 29.6 million sheep, cut its rates on Thursday. But what makes the move interesting is that while most of the world’s central banks have been on a monetary easing spree, the Reserve Bank of New Zealand had begun a cycle of raising its Official Cash Rate early last year.

When rates were first raised last year, central bank Gov. Graeme Wheeler said it was to keep inflation in check. “However, the fall in export commodity prices that began in mid-2014 is proving more pronounced,” said Wheeler in a statement on Thursday that accompanied the policy reversal.

“It’s an unusual case where I think they made a mistake,” said Win Thin, global head of emerging markets strategy at Brown Brothers Harriman. “They tightened too much, and now they’re taking some of that back.”

Meanwhile, some very prominent global policymakers are worried that a U.S. rate increase, expected in the fall, could be poorly timed, as well.

“Muted inflation pressures suggest that interest rate hike can wait a little, that such interest rate hike would be better off in 2016,” said IMF chief Christine Lagarde last week. “The inflation rate is not progressing at a rate that would warrant without risk … a rate hike in the next few months, which is why we are saying the economy would be better off with a rate hike in early 2016.”

via CNBC

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza