The Reserve Bank of New Zealand cut interest rates by 0.25% to 1.75% in an effort to boost inflation and devalue the currency. The decrease was expected by investors and led to a decline in the currency by 1.45% against the USD. It is the seventh quarter-point cut since June 2015. According to the central bankers, the decrease in official cash rate (OCR) will lead to a strengthening economy and expectations of members of the Bank to reach a good level of inflation.
“The weak global economic conditions coupled with low interest rates are putting upward pressure on the kiwi dollar. He said the domestic economy is growing thanks to strength in construction and tourism”, said the Governor of Reserve Bank of New Zealand, Graeme Wheeler. “House price inflation remains excessive and is posing concerns for financial stability”, added he.
The bank is projecting it will keep rates low for several more years. The New Zealand’s annual inflation rate is 0.4%, which is far below the target level set by the central bank of about 2.0%. The country’s economy is growing at a robust annual rate of about 3.6%, supported by the growing population as well as strength in the construction and tourism industries. The Reserve Bank of New Zealand wanted to support the inflation and speed up the growth, by stimulation of the finance system.
New Zealand’s government had been hoping to boost exports by signing a trade deal with USA and a number of Asian countries. However, Donald Trump has opposed the Trans-Pacific Partnership, and his election as the next US president this week may suspend the deal, which will negatively affect the country’s economy.
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