Reserve Bank of New Zealand cuts rates to 3.25 per cent
New Zealand's economic downward spiral continues to be recognised by its central bank, which has cut rates for a sixth straight meeting.
The Reserve Bank of New Zealand (RBNZ) reduced the official cash rate (OCR) by 25 basis points to 3.25 per cent on Wednesday.
It has also issued an updated future track, downgrading a forecast to have the OCR sitting at 2.9 per cent by year's end.
With headline inflation back in the target band, at 2.5 per cent, Governor Christian Hawkesby said conditions were right for another cut.
"Core inflation is declining and there is spare productive capacity in the economy," he said.
Spare capacity might be an understatement.
New Zealand is enduring a tough run of low growth, or as was the case last year, a deep six-month recession when the economy shrunk by more than two per cent.
Responding to the environment, as well as shrunken inflation, the RBNZ has cut the OCR 225 basis points in nine months.
Leading bankers want it to go further, and quickly, to improve business conditions.
Kiwibank chief economist Jarrod Kerr said domestic weakness and overseas uncertainty put the case for a bigger rate cut now, before landing at 2.5 per cent soon.
"The economy needs stimulus, not restraint," Mr Kerr told Newstalk ZB.
"These tariffs, no matter how much they get dialled back ... it's still a tariff across the world, it's still a negative. It still puts deflationary pressure on the economy.
"We're saying get it into stimulatory territory and lets kickstart the economy into next year."
Arguing for the prudent pathway of the 25 basis point cut, Mr Hawkesby said it was not clear how global heavyweights would respond to the US-led trade war.
"For example, it is possible that China could respond to weaker economic activity with a sizeable fiscal stimulus," he said.
The updated forecasts also predict shallow GDP growth of just 1.8 per cent this year, but in better news, an unemployment rate peaking at just 5.2 per cent.
ANZ chief economist Sharon Zollner agreed there was a need for assistance from monetary policy.
"It's been a bit stop-start. So, we thought maybe the country just needs a bit more of a push in the small of the back to make sure that we keep moving forward," she said.
A number of Kiwi banks moved their rates ahead of the well-telegraphed cut, with BNZ shaving 25 basis points off its floating rates, and offering 4.89 per cent for an 18-month fixed term.
ANZ bettered that fixed rate, with 4.85 per cent on offer over the same time frame.
With a clearly signposted change, the Co-operative Bank moved a fortnight ago, dropping its floating rate by 25 basis points.
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