If you are expecting another interest cut rate by the end of next month – think again.
Reserve Bank Governor Graeme Wheeler delivered his first major speech of the year yesterday and made clear he is reluctant to cut the Official Cash Rate from 2.5 percent.
Many people have been expecting another cut to the OCR because inflation is so weak. The bank’s target is between 1 – 3 percent, but inflation is just 0.1 percent right now.
Mr Wheeler told the Canterbury Employers’ Chamber of Commerce a major reason for the low inflation rate is that global oil prices have plunged. If you strip out the effect of the oil prices then core inflation is 1.6 percent.
The Reserve Bank also knows that another cut to the OCR could further fuel Auckland house prices.
Graeme Wheeler’s speech was delivered on the same day the latest employment numbers were released.
Unemployment fell 0.7 percent to 5.3 percent. That was a surprise. Economists had been expecting unemployment to rise to 6.1 percent.
But the participation rate fell by 0.4 percent to 68.4 percent. Unions and Labour are concerned this means more people are opting to give up looking for a job.
The dollar leapt in the wake of the employment numbers and Mr Wheeler’s speech.
The Kiwi is sitting at 66.57 US cents this morning. That is an increase of around 2 percent from yesterday.
