Reserve Bank cuts official cash rate to record low 1 per cent

Author
NZ Herald,
Section
Business,
Publish Date
Wednesday, 7 August 2019, 2:08PM
Reserve Bank Governor Adrian Orr. Photo / NZ Herald.
Reserve Bank Governor Adrian Orr. Photo / NZ Herald.

In a surprise move, the Reserve Bank has cut its official cash rate by half a percentage point to 1.0 per cent.

Market expectations were for a 25 basis point cut.

Mortgage interest rates are already at record lows and look set to push lower still.

ASB bank is the first bank to cut its home loan rates in the wake of the Official Cash Rate cut.

It will shave four basis points off its two year fixed home loan cutting it to 3.75 per cent while cutting 50 basis points off its variable home loan and 45 basis points off its Orbit home loan dropping them to 5.2 per cent and 5.3 per cent respectively.

The Reserve Bank has been loosening monetary conditions since June 2014, when it cut the official cash rate (OCR) to 3.25 per cent.

The New Zealand dollar dropped by US1c to US64.5c in response to today's announcement.

The bank said its monetary policy committee agreed that a lower OCR is necessary to continue to meet its employment and inflation objectives.

"Employment is around its maximum sustainable level, while inflation remains within our target range but below the 2 percent mid-point. Recent data recording improved employment and wage growth is welcome," it said.

GDP growth had slowed over the past year and growth headwinds are rising. In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets.

"Global economic activity continues to weaken, easing demand for New Zealand's goods and services," the bank said.

"Heightened uncertainty and declining international trade have contributed to lower trading-partner growth," it said in a statement.

The bank noted central banks around the world were cutting rates to support their economies.

In New Zealand, low-interest rates and increased government spending will support a pick-up in demand over the coming year, it said.

Business investment is expected to rise given low-interest rates and some ongoing capacity constraints. Increased construction activity also contributes to the pick-up in demand.

"Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level," the bank said.

More to come

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