Business

Official Cash Rate kept at 1 percent

14:47 pm on 25 September 2019

The Reserve Bank (RBNZ) has held its benchmark interest rate at a record low, but has signalled it will cut again if needed to support the economy.

Reserve Bank governor Adrian Orr. Photo: RNZ / Dom Thomas

The official cash rate (OCR) was kept steady at 1.0 percent, which was in line with expectations.

Reserve Bank governor Adrian Orr said economic growth was still solid but slowing, while the headwinds at home and abroad were rising.

Mr Orr said interest rates could be expected to stay low for longer, and there was scope for more stimulus if needed.

The monetary policy committee, which now sets the cash rate, decided that there was no major change in the outlook since the surprise 0.5 percent cut last month.

"Global trade and other political tensions remain elevated and continue to subdue the global growth outlook, dampening demand for New Zealand's goods and services," the committee said in a statement.

"Business confidence remains low in New Zealand, partly reflecting policy uncertainty and low profitability in some sectors, and is impacting investment decisions."

The OCR has been cut from 1.75 percent to its current level this year after being on hold for more than two years.

"The reduction in the OCR this year has reduced retail lending rates for households and businesses, and eased the New Zealand dollar exchange rate."

Economy should improve

"Low interest rates and increased government spending are expected to support a pick-up in domestic demand over the coming year.

"Household spending and construction activity are supported by low interest rates, while the incentive for businesses to invest will grow in response to demand pressures," the committee said.

Interest rate decisions are now made by a committee of four RBNZ staff and three outside members.

It said interest rates were low around the world and the economy would need low interest rates to support activity and to meet its objectives.

"Consequently, New Zealand interest rates can be expected to be low for longer.

"There remains scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain our inflation and employment objectives."

The New Zealand dollar gained about a quarter of a cent against the US dollar after the decision, settling at around 63.4 US cents.

An economist said the RBNZ seemed satisfied for the time being with its earlier cuts, but the door was open for further cuts.

"By itself the statement suggests that a November cut isn't a dead certainty, even though we think it is the highly likely outcome," ASB chief economist Nick Tuffley said.