The Reserve Bank of Australia has cut its cash rate target by 25 bps to 2.75% from 3.00%.
The NZ dollar gained on the news and is now trading at a 4 year high at NZ$1 = AU$0.8350 after briefly reaching AU$0.8368.
The Australian rate cut took 20 bps off the NZD:USD rate as well.
Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 2.75 per cent, effective 8 May 2013.
The global economy is likely to record growth a little below trend this year, before picking up next year. Among the major regions, the United States continues on a path of moderate expansion and China's growth is running at a more sustainable, but still robust, pace. Japan has announced significant new policy initiatives aimed at strengthening demand and ending deflation. The euro area remains in recession. Commodity prices have moderated a little in recent months though they remain high by historical standards.
Financial conditions internationally continue to be very accommodative, with risk spreads reduced, funding conditions for most financial institutions improved and borrowing costs for well-rated corporates and sovereigns exceptionally low.
Growth in Australia was close to trend in 2012 overall, but was a bit below trend in the second half of the year, and this appears to have continued into 2013. Employment has continued to grow but more slowly than the labour force, so that the rate of unemployment has increased a little, though it remains relatively low.
With the peak in the level of resources sector investment likely to occur this year, there is scope for other areas of demand to grow more strongly over the next couple of years. There has been a strengthening in consumption and a modest firming in dwelling investment, and prospects are for some increase in business investment outside the resources sector over the next year. Exports of raw materials are increasing as increased capacity comes on stream. These developments, some of which have been assisted by the reductions in interest rates that began 18 months ago, will all be helpful in sustaining growth.
Recent data on prices confirm that inflation is consistent with the target and, if anything, a little lower than expected. The CPI rose by 2½ per cent over the past year, and measures of underlying inflation gave a broadly similar outcome. These results have been pushed up a little by the impact of the carbon price. Growth of labour costs has moderated slightly over recent quarters while productivity growth appears to be improving. This should help to lessen increases in prices for non-tradables. The Bank's forecast remains that inflation over the next one to two years will be consistent with the target.
Over recent meetings, the Board has noted that interest rates have already been reduced substantially, with borrowing rates approaching previous lows, and that the effects of this on the economy are continuing to emerge. Savers have been changing their portfolios towards assets with higher expected returns, asset values have risen and some interest-sensitive areas of spending have increased.
The exchange rate, on the other hand, has been little changed at a historically high level over the past 18 months, which is unusual given the decline in export prices and interest rates during that time. Moreover, the demand for credit remains, at this point, relatively subdued.
The Board has previously noted that the inflation outlook would afford scope to ease further, should that be necessary to support demand. At today's meeting the Board decided to use some of that scope. It judged that a further decline in the cash rate was appropriate to encourage sustainable growth in the economy, consistent with achieving the inflation target.
19 Comments
More special pleading from a debt junky.
The question that should be being asked - why is it that interest rates are still set on record emergency lows when NZ growth for next year has been picked to accelerate to 3% plus?
(New Zealand Treasury forecast economic growth would increase to 2.6% and 3.4% in 2013 and 2014 respectively then settle at around 3%).
Kimy give it a rest. Your sole concern is lowering your monthly interest payments on the dozen or so properties you have bought. Enough said - all your other comments in which you feign interest about the plight of fellow New Zealanders just make you look economically illiterate.
The CPI rose by 2½ per cent over the past year, and measures of underlying inflation gave a broadly similar outcome.
NZ is a far better destination for savers with CPI inflation registering a dignified 0.9% ann. rate of growth. The rich real yield grabbing Aussies will be moving here before you know it. I bet it's already happening. Cripes mate, no wonder that NZD/AUD cross rate has been flying in our favour.
Craig Simpson says he has the proof:
Half way through April saw the NZ Debt Management Office (NZDMO) issue $2 bln of the new 2020 NZGS. The settlement of this bond coincided with the April maturity of an existing NZGS issue.
Needless to say there was plenty of funds coming available looking for a new home and the 2020 bond attracted strong bidding and was issued at an initial yield of 3.15%.
Australasian investors took 63% of the 2020's and were immediately rewarded with yields falling 22 basis points (bps) to 2.93%.
This makes underarm bowling seem a decidedly pedestrian insult to kiwis.
How are we to pay the buggers with such low wage and salary growth rates?
As all above posters are noting, this would seem to be the final catalyst for the RBNZ to drop rates. Whether with lower rates than now we would still win an international least ugly contest am not sure; and am certainly not sure we would want to, but we are clearly winning it on current settings. Paying a premium in interest to foreigners to keep our currency uncomfortably high, while inflation is actually under the target band, doesn't make much sense. Recent fuel price reductions suggest to me inflation has more downside than up.
I would prefer we start with some capital management, especially out of Treasury, to stop a few own goals from them; along with avoiding some of the hot money coming in for property and farms through the banks, but if Bill English is determined that the OCR is the only tool to be used, then so be it. Use that
Which begs the question why are they keeping the OCR on hold? It appears the aussies will soon drop below 2.5%.
I'm not convinced the property bubble in AKL and CCH has as much to do with it considering the value of properties on the rise in major OZ cities. See link below:
http://www.abc.net.au/news/2013-04-02/house-prices-jump-in-most-capital…
Yes, it's an easy "go-to" for the governor and treasury to say why rates are to be kept where they are but is that the only reason?
What other benefit(s) are there from keeping interest rates comparatively high and the steadily over-valued $NZ... apart from cheaper holidays and gagets?
I appreciate your concern for the pensioners but they are no longer (or I should hope) paying off mortgages. They are no longer working and paying taxes other than RWT and GST.
I apologise for being selfish but there are many young families in NZ who would benefit greatly from lower interest rates ( well, those who are still floating).
Do not assume all of us are "debt junkies". Far from it in these times.
"The global economy . . . . . . ., before picking up next year."
I think I have heard that before. Here MAF/MPI always seem to believe agriculture will be more profitable in future - as our dollar drops to where TSY says it should.
The trouble with any economist's 'next year' is that it is always seems to be in the future.
You lot are off your heads - or you are highly leveraged and desperately need your mortagage rates to fall (the latter mostly I would guess). One should be asking the question why with decent growth rates of 2% plus (and likely to rise) are NZ interest rates still set at emergency lows? If you are genuinely worried about the currency (which I doubt any of you are) you might notice that against the US$ and other non A$ currencies the NZ$ being pulled down nicely tonight by the ockers panic move (which exporters will be happy with). If the Aussies keep cutting their IRs then the Kiwi will fall without any intervention by the RBNZ thank you very much.
With response to both of your head-shots.
1) Lower interest rates will mean "folk" like me (mortgage and family) and there's plenty of us can reduce their debt on the family home much faster (a no-brainer). Resulting in less debt for the country as a whole and money to be spent elsewhere (paying for higher power bills for instance)
. Not everyone out there wishes to buy up numerous properties with high leveraged debt.
The bank would laugh at me if I even proposed the idea!
2) The high dollar will remain steady above $US 0.80 hurting manufacturing and agriculture. The difference in return is huge for big firms/farms when it could drop nearer the $US0.75.
3) "If the Aussies keep cutting their IRs then the Kiwi will fall without any intervention by the RBNZ thank you very much" - really?!!
How do you justify this? Our interest rates will be flavour of the month if the OZ rate keeps dropping... how will this impact on the $NZ? Why do you think they're dropping their OCR?
This is about long-term thinking not how much we can keep in our wallets for today only.
Why does NZ persist in running such tight monetary conditions?
Does RBNZ get orders from offshore?
Why are we unnecessarily cutting Govt spending, keeping high interest rates, etc while there is a global major recession & crisis going on? Do we think we are immune?!
Plenty of remedies for upper middle class housing price rises without smashing the economy, smes , regional growth & labour mkt.
Visionaries, not reactionaries unlike the Government and the RBNZ. Well done Aussie - you are making the hard calls unlike your counterparts over the Ditch that dither and pontificate, and wait for others to come up with financial solutions to solve their mess.
A+
Lets see if the RBNZ has the goolies to at least match or better this rate cut - Lets be the sheppard and not part of the flock
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