Low inflation allows for OCR cut

Low inflation allows for OCR cut - 21 January

Today’s CPI release by Statistics NZ showed low inflation pressure, with a fall of 0.2% in the December quarter and a rise of 0.8% for the year ended December. This low inflation means the Reserve Bank of New Zealand (RBNZ) could cut the OCR to support growth and help with our overvalued exchange rate, say the New Zealand Manufacturers and Exporters Association (NZMEA).

NZMEA Chief Executive John Walley says, “With annual inflation below the target band (between 1% and 3%) and below expectations, there is room for a cut in the OCR. This will help move our interest rates closer to the rest of the world, which will take some pressure off our “unjustified and unsustainable” exchange rate (as the RBNZ has repeated many times); helping to make our exporters and import competing manufacturers much more competitive, fuelling growth, employment and investment.”

“The world is not what it was in the middle of last year. We have been of the view that the OCR rise last July would not have happened had it been delayed even to September. Much of the world is facing issues with persistent low inflation – a risk that needs to be considered in New Zealand around Monetary Policy alignment.”

“Concern around the housing market remains, particularly in Auckland, and this could pose a financial stability risk - we encourage the RBNZ to continue to look at other tools to tackle this issue. Without such tools, the tradable sector will continue to bear the brunt of this through an overvalued currency brought about in large part by interest rates out of step with the rest of the world. Tradable inflation fell 0.8% in the December quarter and fell 1.3% for the year, non-traded inflation rose 2.4% for the year."

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