RBNZ's Wheeler Says Further Interest-Rate Cuts Seem Likely

  • Central bank conscious of impact of low rates on housing
  • ``Recent economic indicators have been more encouraging''

New Zealand’s central bank Governor Graeme Wheeler said further interest-rate cuts are possible even as recent economic data has been more encouraging.

“Some further easing in the OCR seems likely but this will continue to depend on the emerging flow of economic data,” Wheeler said in the text of a speech in Auckland Wednesday. Last month, he cut the official cash rate to 2.75 percent.

New Zealand’s dollar fell after his comments, as traders increased bets Wheeler will lower the benchmark again on Oct. 29. It bought 66.43 U.S. cents at 10:36 a.m. in Wellington from 66.65 cents immediately before the release.

Nine of 14 economists surveyed by Bloomberg forecast the Reserve Bank will lower rates this month as economic growth slows and inflation remains below the 1 percent to 3 percent band that Wheeler targets. A report Friday will show consumer prices rose 0.3 percent in the year through September, according to economists’ median forecast.

More Qualifiers

“October is live and that’s when we think they will cut,” said Chris Tennent-Brown, senior economist at ASB Bank in Auckland. Still,“there are a few more qualifiers on the punchline about where next for the OCR. This is sounding like it’s not a certain deal.”

The RBNZ “remains conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation,” Wheeler said, indicating the issues that might moderate the push to lower rates. “It is important also to consider whether borrowing costs are constraining investment, and the need to have sufficient capacity to cut interest rates if the global economy slows significantly.”

Wheeler on Sept. 10 cut interest rates for the third time in three months, and the RBNZ forecast that growth in the 12 months to March will be the weakest in three years amid a slump in dairy prices and dwindling demand.

“Recent economic indicators have been more encouraging,” Wheeler said today without adding any details. Dairy auction prices have jumped 63 percent from a low in early August and business confidence rose in September for the first time in six months.

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