OCR cut to all-time low
The New Zealand dollar took a sharp dive yesterday as the Reserve Bank announced the Official Cash Rate was cut by 0.25 points to 1.5 percent, the lowest it has ever been. This is the first change in the OCR for nearly three years. It has sat at 1.75 percent since September 2016.
As indicated in the March update, the economic outlook is uncertain as global and domestic growth has continued to weaken since 2018 and pressure on inflation is projected to increase.
“Global economic growth has slowed since mid-2018, easing demand for New Zealand’s goods and services. This lower global growth has prompted foreign central banks to ease their monetary policy stances, supporting growth prospects,” said the statement from the Reserve Bank.
“However, there is uncertainty about the global economic outlook. Trade concerns remain, while some other indicators suggest trading-partner growth is stabilising.”
The Bank’s Monetary Policy Committee noted a key downside risk relating to the growth projections was a larger than expected slowdown in global economic growth, particularly with our main trading partners, China and Australia, and indicated it was more concerned about the global slowdown rather than a faster recovery.
The Bank has said it’s decision to lower the OCR is necessary to support the employment and inflation outlook and will provide a more balanced outlook for interest rates. There is potential for an uplift in the housing market to support household spending growth more than anticipated through lower mortgage rates and the relaxing of loan-to-value regulations. We have already seen a further drop in mortgage interest rates by ANZ and Kiwibank.
You can read more on the decision at the Reserve Bank website.