The Reserve Bank of New Zealand took the initiative and set an easing monetary policy stance, making it first country in the developed world of late that has chosen to cut the interest rates and to signal its disposition to make more reductions in the future, if the circumstances require it. This is the first time the New Zealand central bank lowers the interest rate since November 2016.
The Central Bank Monetary Policy committee, together with Governor Adrian Orr, decided to take this policy stance due to weak inflation and the weak labor economic data. The decision, which was reached by consensus, contrasts a lot with other central bank's monetary policy stances, especially that of the United States, whose central bank governor Jerome Powell, has been criticized lately by President Donald Trump for discarding quantitative easing and keeping the interest rates level the same.
“A lower OCR is necessary to support the outlook for employment and inflation,” said the Reserve Bank of New Zealand after setting its rate at 1.5 percent, “A lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates," the bank added.
Afterward, the bank signaled further reductions for the future, saying that there is around 50 percent probability of another cut.
“The next move in the OCR will likely be data dependent; we have penciled in August but feel the risks are skewed to a later move,’’ said Nick Tuffley, the Central Bank Chief Economist. “The RBNZ’s current OCR outlook suggests a measured assessment before a further cut, rather than a sense of urgency,’’ he added.
The Central Bank's projection shows an official cash rate reduction to 1.48 percent at the end of this year and to 1.36 percent in next year's third quarter.
The bank also decided to cut its economic growth forecast, saying that they now expect a 2.2 percent annual economic growth instead of the previously set 2.9 percent. The bank also expects economic growth to bounce back in 2020, setting its forecast in 3.2 percent.