New Zealand’s economy is positioned to withstand a period of low inflation because the central bank has scope to lower borrowing costs if required, Finance Minister Bill English said.
“Markets are reflecting an anxiety that economies with zero or negative interest rates can’t rely on central bank interventions as they have in the past,” English said in a speech in Auckland Thursday. “New Zealand is in a better position than most because the Reserve Bank still has room to move if needed.”
Reserve Bank Governor Graeme Wheeler held the official cash rate at 2.5 percent in late January and said some further easing may be needed as inflation will take longer to reach the bank’s 1-3 percent target than previously expected. There is a 72 percent chance of a rate cut by June 30, according to swaps data compiled by Bloomberg.
English said New Zealand’s economy is forecast to keep expanding over the next two years amid “ongoing wobbles in the global economy” and other challenges including weak dairy prices and softer growth in China.
Dairy farmers “are doing it tough” but other exports are picking up, he said. The burgeoning number of affluent Chinese households opens new opportunities for consumer exports and services like tourism and education, he said.