Thu, Aug 08, 2019 - Page 10 News List

New Zealand cuts rates to record low

‘GROWTH HEADWINDS’:The RBNZ cited employment being nearly at its maximum sustainable level and low inflation for a reduction that was twice as large as expected


New Zealand’s central bank yesterday slashed interest rates to a record low of 1 percent, warning that the economy faced rising headwinds.

It did not rule out a further reduction later this year, saying that stimulus was necessary to meet employment and inflation targets.

The surprise cut in the official cash rate to 1 percent, from a previous low of 1.5 percent set in May, had an immediate impact on the housing market, with mortgage rates falling while the New Zealand dollar dropped to US$0.6435.

Many analysts had tipped a 25 basis-point cut.

Employment was close to its maximum sustainable level, inflation was below the 2 percent midpoint of the target range and “growth headwinds are rising,” the Reserve Bank of New Zealand (RBNZ) said.

“In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets,” the bank said in a statement.

The bigger-than-expected cut “does not rule out any further action” later in the year, RBNZ Governor Adrian Orr said.

New Zealand Prime Minister Jacinda Ardern said that the decision brought the country’s official cash rate in line with Australia, adding that it was positive news for homeowners.

“We are in an environment where unemployment is low, we see wages are increasing and this cut will ultimately mean New Zealanders should face lower interest rates,” she said.

The bank noted that a number of central banks worldwide were easing monetary policy in the face of a weakening global economy.

“Global long-term interest rates have declined to historically low levels, consistent with low expected inflation and growth rates into the future,” the bank said. “In New Zealand, low interest rates and increased government spending will support a pickup in demand over the coming year.”

India’s central bank yesterday joined New Zealand with bigger-than forecast rate cut, as New Delhi battles sluggish economic growth and high unemployment.

The Reserve Bank of India (RBI) cut interest rates for the fourth time this year, bringing the benchmark repo rate — the level at which it lends to commercial banks — 35 basis points lower to 5.4 percent, the lowest level since 2010.

“The monetary policy committee was of the view that a 25 basis-point rate cut was inadequate due to evolving global economic conditions, while a 50 basis-point cut would be excessive,” RBI Governor Shaktikanta Das told reporters. “Hence, 35 basis points was viewed as a balanced level of cut due to the current circumstances.”

All 36 economists surveyed by Bloomberg News had predicted that the RBI would cut rates by 25 basis points.

A fall in domestic demand last quarter lowered India’s growth rate to 5.8 percent, with unemployment at its highest since the 1970s.

“Domestic economic activity continues to be weak, with the global slowdown and escalating trade tensions posing downside risks,” the RBI said in a statement.

The RBI revised down its growth projection for the current fiscal year from 7 percent to 6.9 percent, saying that the global economy has been losing pace.

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