The economy is currently growing at an annual rate of about 2 per cent and is experiencing an adjustment phase after the sharp decline in export prices and fall in the exchange rate, Reserve Bank Governor Graeme Wheeler said in a statement.
“House prices in Auckland continue to increase rapidly and are becoming more unsustainable. Residential construction is increasing in Auckland, but it will take some time to correct the imbalances in the housing market.”
Although activity has eased in light of a slowdown in construction activity in Canterbury and a weakening in business and consumer confidence, Wheeler says a number of factors maintain growth.
“Robust tourism, strong net immigration, the large pipeline of construction activity in Auckland and other regions, and, importantly, the lower interest rates and the depreciation of the New Zealand dollar,” says Wheeler.
While the lower exchange rate supports the export and import-competing sectors, further depreciation is appropriate, given the sharpness of the decline in New Zealand’s export commodity prices.”
With the last three consecutive interest rate cuts, when the next cut could occur is more difficult to predict, PwC partner and treasury advisory lead Roger Kerr said in a statement.
“The markets were expecting that a fourth cut would occur in late 2015/early 2016 and the RBNZ appears to have pushed that timing forward to mid-2016.
Whilst the RBNZ has stated that a fourth cut to 2.50% is likely, as always, it is dependent upon the emerging economic data as to whether that will be necessary or not. It would take stronger growth and a more rapidly increasing annual inflation rate than currently expected to dissuade the RBNZ from a fourth OCR cut to 2.50%.
“Interestingly, the recent volatility in global financial markets has not caused any significant change in the RBNZ’s outlook for the New Zealand economy. Our reading is that the recent plummet in business confidence indices would have been overdone as business firms react to negative media headlines on global events, however their own trading environment remain largely positive.”