New Zealand central bank seen cutting rates as economic growth slows


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WELLINGTON (Reuters) – Most economists are expecting New Zealand’s central bank to cut rates to a record low at its last monetary policy decision of the year on Wednesday after the bank signaled in recent months it was willing to ramp up stimulus if necessary to combat slowing economic conditions.

FILE PHOTO: Pedestrians walk near the main entrance to the Reserve Bank of New Zealand located in central Wellington, New Zealand, July 3, 2017. REUTERS/David Gray/File Photo

Twelve out of 15 analysts polled by Reuters expected the Reserve Bank of New Zealand (RBNZ) would cut rates to 0.75% this week from the current 1%.

“The short-term growth outlook is subpar and risks are skewed to the downside, with the RBNZ needing to take out more insurance to prevent a more protracted undershoot of its employment and inflation objectives,” Mark Smith, senior economist at ASB Bank, said in a research note.

All 13 economists who forecast beyond this week’s meeting expected the bank to have cut rates by at least 25 basis points by the end of next year, with ANZ Bank forecasting rates would be as low as 0.25%.

The RBNZ at its monetary policy review in August stunned markets with the size of its 50-basis-point cut and signaled it would be willing to slash rates further, although it held steady at an official cash rate decision in September.

A slowing global economy, the protracted China-U.S. trade war and warnings of recession have spurred major central banks across the world to ease monetary policy.

At home, gloomy business confidence has been concerning the bank and poses a risk to growth as firms indicate their own activity is slowing and they are holding off on investment.

Gross domestic product data released in September showed that annual growth had slipped to 2.1% in the second quarter, the lowest since 2013.

The bank has struggled to support inflation around the 2% midpoint of its target band, with the number slipping to 1.5% in September.

The RBNZ now has a dual mandate of targeting maximum sustainable employment, meaning labor figures are also keenly in focus. Data released last week showed unemployment ticking up from a decade low but still lower than the bank had forecast in August.

Some economists believed that might tip the finely balanced decision in favor of staying put.

“The labor market is in better fettle than one would expect given the state of business confidence,” said Dominick Stephens, chief economist at Westpac Bank, which has forecast the bank will hold this week and cut in the first quarter of next year. “The RBNZ decision on Wednesday is a close call.”

Reporting by Charlotte Greenfield; Editing by Peter Cooney


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