New Zealand’s central bank yesterday returned interest rates to a record low in a bid to spur the stalling economy and drive up weak inflation.
The move takes the bank’s benchmark rate to 2.5 percent, matching the low set between 2011 and last year to help the economy recover after a major earthquake in Christchurch.
The 0.25 percent cut, the fourth reduction since June, was predicted by 15 out of 18 economists surveyed by Bloomberg News.
New Zealand, the world’s top dairy exporter, has been struggling as a slump in global milk prices to the lowest point in more than a decade has dragged growth down to 2.5 percent.
Reserve Bank of New Zealand Governor Graeme Wheeler said that rising export prices and improving confidence would drive a pickup in the economy next year.
He also forecast that inflation would rise from 0.4 percent into the bank’s target range of 1 percent to 3 percent by early next year.
“Monetary policy needs to be accommodative to help ensure that future average inflation settles near the middle of the target range,” he said. “We expect to achieve this at current interest rate settings, although the bank will reduce rates if circumstances warrant. We will continue to watch closely the emerging flow of economic data.”
The move sent the New Zealand dollar higher, jumping to US$0.6737 compared with US$0.6647 before the decision.
Meanwhile, South Korea’s central bank left its benchmark interest rate unchanged at a record low of 1.5 percent for a sixth consecutive month, ahead of an anticipated rate increase by the US Federal Reserve.
The decision had been widely expected, with the Bank of Korea’s (BOK) board members adopting a wait-and-see approach to the effects of an eventual Fed hike on the global economy.
“The domestic economy isn’t at a situation where the BOK needs to change monetary policy, especially ahead of the Federal Reserve meeting,” Seo Hyang-mi, a Seoul-based fixed-income analyst for HI Investment and Securities Co, told Bloomberg News.
“With the Fed’s decision likely to increase financial market volatility and [South] Korea’s household debt rising, I don’t think the BOK would cut interest rates in the foreseeable future as it would exacerbate the problems,” Seo said.
Asia’s fourth-largest economy expanded 1.3 percent in the July-September period, the fastest quarter-on-quarter growth since the second quarter of 2010.
The Bank of Korea has predicted GDP growth of 2.7 percent for the whole of this year.
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