WELLINGTON, New Zealand (AP) — New Zealand's central bank on Thursday cut its benchmark interest rate by a quarter point to 3.25 percent and signaled more cuts could be on the way as farmers grapple with a slump in prices for the country's key milk exports.
The New Zealand dollar fell nearly 2 cents after the announcement to trade at around 70 U.S. cents. Reserve Bank Governor Graeme Wheeler said a reduction in interest rates was appropriate given that inflation was low.
"The New Zealand economy is growing at an annual rate of around 3 percent, supported by low interest rates, high net migration, construction activity and the decline in fuel prices," he said. "However, the fall in export commodity prices that began in mid-2014 is proving more pronounced."
New Zealand was unusual among industrial nations last year when it hiked interest rates while others were keeping them at historically low levels following the 2008 global financial downturn.
New Zealand made that decision because the economy was growing at a robust rate of around 4 percent and Wheeler also wanted to rein in skyrocketing house prices in the country's main city of Auckland.
But prices for milk exports have slumped by more than 50 percent since early last year, due in part to China's slowing economic growth. The central bank hopes that lower interest rates will push New Zealand's currency lower and increase the competitiveness of exporters.
Wheeler said he remained concerned about Auckland's house prices, which have been increasing at an annual rate of about 17 percent, compared to increases of about 3 percent in the rest of the country. The central bank has imposed lending restrictions on speculators as it tries to tame the Auckland market.
Before Thursday's announcement, economists had been divided in their predictions over whether Wheeler would cut rates. The markets took note that the governor indicated further rate cuts were likely.
"We expect further easing may be appropriate," he said. "This will depend on emerging data." The central bank will make its next decision on rates in about six weeks' time.
yahoo.com
The New Zealand dollar fell nearly 2 cents after the announcement to trade at around 70 U.S. cents. Reserve Bank Governor Graeme Wheeler said a reduction in interest rates was appropriate given that inflation was low.
"The New Zealand economy is growing at an annual rate of around 3 percent, supported by low interest rates, high net migration, construction activity and the decline in fuel prices," he said. "However, the fall in export commodity prices that began in mid-2014 is proving more pronounced."
New Zealand was unusual among industrial nations last year when it hiked interest rates while others were keeping them at historically low levels following the 2008 global financial downturn.
New Zealand made that decision because the economy was growing at a robust rate of around 4 percent and Wheeler also wanted to rein in skyrocketing house prices in the country's main city of Auckland.
But prices for milk exports have slumped by more than 50 percent since early last year, due in part to China's slowing economic growth. The central bank hopes that lower interest rates will push New Zealand's currency lower and increase the competitiveness of exporters.
Wheeler said he remained concerned about Auckland's house prices, which have been increasing at an annual rate of about 17 percent, compared to increases of about 3 percent in the rest of the country. The central bank has imposed lending restrictions on speculators as it tries to tame the Auckland market.
Before Thursday's announcement, economists had been divided in their predictions over whether Wheeler would cut rates. The markets took note that the governor indicated further rate cuts were likely.
"We expect further easing may be appropriate," he said. "This will depend on emerging data." The central bank will make its next decision on rates in about six weeks' time.
yahoo.com
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