RBNZ Holds at 3.5% as Expected

New Zealand’s central bank on Thursday opened the door to a possible rate cut in the face of low inflation and an uncertain global outlook, sending the kiwi dollar to a near-four year low.  The Reserve Bank of New Zealand (RBNZ) held its cash rate steady at 3.5 percent as expected, but said inflation was set to remain lower for longer even though the economy was growing strongly, meaning there was no need to change rates.

“In the current circumstances, we expect to keep the OCR on hold for some time,” RBNZ Governor Graeme Wheeler said in a statement, as he dropped the explicit tightening bias of the December statement.  “Future interest rate adjustments, either up or down, will depend on the emerging flow of economic data.”

The RBNZ’s shift to a neutral tone followed surprise monetary easings in Canada and Singapore over the past week, and a bigger-than-expected bond-buying stimulus programme by the European Central Bank, as policymakers globally respond to the threat of deflation from collapsing oil prices and faltering growth.  Wheeler said the outlook for major trading partners, except the United States, was weaker. Indeed on Wednesday, the Federal Reserve struck an upbeat note on the U.S. economy, skirting tottering economies in Europe and Asia.


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