OCR decision revealed

Wednesday 26 June 2019

The Reserve Bank has kept the Official Cash Rate on hold at the record low of 1.5%. Here's why.

The Reserve Bank said: 

The Official Cash Rate (OCR) remains at 1.5 percent. Given the weaker global economic outlook and the risk of ongoing subdued domestic growth, a lower OCR may be needed over time to continue to meet our objectives.

Domestic growth has slowed over the past year. While construction activity strengthened in the March 2019 quarter, growth in the services sector continued to slow. Softer house prices and subdued business sentiment continue to dampen domestic spending.

The global economic outlook has weakened, and downside risks related to trade activity have intensified. A number of central banks are easing their monetary policy settings to support demand. The weaker global economy is affecting New Zealand through a range of trade, financial, and confidence channels.

We expect low interest rates and increased government spending to support a lift in economic growth and employment. Inflation is expected to rise to the 2 percent mid-point of our target range, and employment to remain near its maximum sustainable level.

Given the downside risks around the employment and inflation outlook, a lower OCR may be needed.

Comments from our readers

On 26 June 2019 at 3:26 pm Winka said:
When an OCR is at 5%, there is a 5% (100%) ability to reduce to 0%. If the OCR is at 5% and you reduce it by just 1.5% you have reduced it by 25% If you have an OCR at 1.5% and reduce it by 1.5% you have reduced it by 100% So now that we have an OCR at 1.5% we are left in a position where when (not 'if') there is a major downturn and the Reserve Bank is expected to act with an interest-rate-remedy, they are going to be 'stymied' for a truly effective solution for a remedy? 'Monetary' and 'fiscal'policies are distinctly different animals. By trying to manipulate the natural (economic) cycles with 'monetary' policies (reducing OCR's) is a wee bit like turning on the heater in winter in the distorted belief that you are sort of 'skipping' winter and creating an eternal summer! When the OCR is so low the RB loses any effective ability to stimulate growth in a large & extended recession (or depression) because once the OCR is at 0% there is a deflationary problem. Playing around with natural cycles (such as economic, or natural climate cycles) with respectively; interest rates or heaters, must only stall the inevitable and probably compound the magnitude of each? Fiscal policies are one of the only other tools left and this includes extra taxes. Over-compliance is a form of this sort of policy, and I have covered this fact in a recent comment on GR. Scaffolded buildings with white plastic-wrap, mostly resulting from central government directing local government (councils) to apply mostly 'over-the-top' new compliance regulations which seem to be seen as an attempt to condition us into believing that we have a booming economy? A report recently stated that 67% of the scaffold/white plastic-wrap 'construction'we see around our towns & cities has been attributed to the demands of this over-compliance? Several are of the opinion that it is actually much higher than 67%. Many people simply cannot imagine life without the normal scaffold/plastic-wrap landscape. So what day is the downturn going to happen? Is the predicted downturn due on or about the day that all the new compliance work is completed? Or will we experience a new 'heater' in the form of 'new' new-compliance? Maybe just sit back and use the approach of 'she'll be right' until we only realise at the moment the heater is switched off that there is no such thing as the 'eternal summer'..... although those who inhabit places such as the Sahara may dispute that claim, and scoff at us as we struggle with the flooding blimmen rain? Keep a good keen eye on the OCR 'heater switch' however, be more mindful of the signs of why it may be switched as a 'remedy' in an attempt to control the cycles of time? Time will prove this correct....or not!
On 27 June 2019 at 11:32 am jimmynz said:
Winka - I have absolutely no idea where you are going with this. What is the actual purpose and point of your comment please?
On 28 June 2019 at 10:48 pm Winka said:
aha jimmynz If there is hardly any effective room left in being able to reduce the OCR and if you understand cycles and where we are and where we are going to be soon, then you would be expected to know quite clearly the purpose of my comments. However...maybe this time I could be wrong in reading cycles. And equally wrong in my references to (over) compliance in it's many guises. what is it that you appear to struggle with in the above?

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