Political & Economic week that was: OCR cut fallout
RBNZ chief economist John McDermott talks to Rob Hosking about why waiting to cut interest rates was riskier than cutting now. With special audio feature.
Sometimes, central banks sneak up behind the financial markets and sort of belt them hard in the back of the knee.
That's what the Reserve Bank did this week looked like, although chief economist John McDermott tells Rob Hosking the fact financial markets were not expecting an official cash rate cut until June was not a factor in the decision to lower the OCR to 2.25%.
But it did catch financial markets wrong-footed, and the Reserve Bank will not be unhappy with the nearly 2% drop in the trade-weighted index measure of the New Zealand exchange rate that followed.
It is clear, though, from what Mr McDermott says in an interview with NBR and from governor Graeme Wheeler’s comments at his press briefing that, while the outlook for the New Zealand economy remains strong, the world economy is in a particularly uncertain phase and that could change things dramatically.
For now, the Reserve Bank is in cutting mode. Probably. Although the 90-day interest rate forecasts imply one more official cash rate cut, Mr Wheeler says this is by no means certain and there could be more or there could be none.
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Fri, 11 Mar 2016
Fri, 11 Mar 2016
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Political & Economic week that was: OCR cut fallout
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