RBNZ retains view of robust economy in face of rate cuts

Thursday 10th March 2016

The Reserve Bank kept its forecast for robust economic activity in New Zealand, even as dwindling expectations on inflation forced an interest rate cut.

The central bank anticipates gross domestic product will grow at an annual pace of about 3 percent over the next two years, raising its forecast for 2016 and 2017 and trimming its outlook for 2018. Unemployment is seen dropping below 5 percent in 2018, with the bank slicing about half a percentage point from its forecast joblessness, the government's operating balance is predicted to be flat in 2016 with surpluses in out-years, and the current account deficit is predicted to be smaller than previously thought.

"Domestically, the dairy sector faces difficult challenges, but domestic growth is expected to be supportive by strong inward migration, tourism, a pipeline of construction activity, and accommodative monetary policy," governor Graeme Wheeler said in a statement.

Wheeler today cut the official cash rate a quarter point to a record low 2.25 percent, and hinted at more reductions, to try and stave off dwindling expectations on the inflation outlook as globally cheap oil and a persistently strong kiwi dollar keep a lid on imported prices.

The bank said its recent revisions to GDP forecast suggested the slowing momentum at the start of last year was more pronounced than earlier thought, with lower consumption and business investment through 2015 " suggesting the economy has responded to slower growth in national incomes to a greater extent."

BusinessDesk.co.nz

Comments from our readers

No comments yet