Reserve Bank reduces Official Cash Rate to new record low of 1.5%

The Reserve Bank of New Zealand (RBNZ) has reduced the Official Cash Rate to a new record-low of 1.5%, on the back of sluggish economic growth.

RBNZ Governor Adian Orr made the rate cut announcement today (8 May), a move some economists predicted had about a 50% chance of taking place.

In earlier announcements, Mr Orr suggested there would not be any change to the OCR until as far away as 2021. However, in the last announcement, he tempered his language and said, if there was to be a rate change, it would be more likely to be a cut.

This is the first change to New Zealand’s cash rate since November 2016, when it dropped from 2% to the then-record low of 1.75%. This was in part on the back of an overheated housing market.

Monetary Policy Committee cites slow household spending as factor in cutting rate

Mr Orr said the Monetary Policy Committee decided RBNZ needed to cut the cash rate, citing a slowing down of household spending, ongoing low business sentiment and “inflationary pressure projected to rise only slowly”.

“The Monetary Policy Committee agreed on the economic projections outlined in the May 2019 Statement in order to provide a sound basis on which to form its OCR decision.

“The Committee noted that inflation is currently slightly below the mid-point of the inflation target, and that employment is broadly at the targeted maximum sustainable level.

“However, the members agreed that given the recent weaker domestic spending, and projected ongoing growth and employment headwinds, there was a need for further monetary stimulus to meet its objectives,” RBNZ said in a statement.

Those nearing the end of a fixed term home loan, or New Zealanders who are looking to get their first home loan, will likely be eyeing the market closely, to see whether home loan providers pass the rate cut on to borrowers. However, providers have already been caught up in a mortgage rate war, prior to this announcement.

On the flipside, this may mean a reduction in providers’ savings rates, meaning those looking to save for the future may have to look even harder for attractive rates.


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