Reserve Bank maintains status quo on OCR

Official Cash Rate remains at 1 percent
Adrian Orr: The Reserve Bank to keep OCR at 1 percent Photo credit: Newshub.

The Reserve Bank has announced that the Official Cash Rate (OCR) will remain unchanged at 1 percent.

In a statement released on Wednesday, Reserve Bank Governor Adrian Orr said the decision is based on continued global trade issues and other political tensions, which continue to dampen the global outlook.  

Closer to home, reduced demand for local goods and services, low business confidence and low profitability in certain sectors is impacting on investment decisions.

"Global long-term interest rates remain [at] near historically low levels, consistent with low expected inflation and growth rates into the future.

"Consequently, New Zealand interest rates can be expected to be low for longer."

The August cut reduced borrowing rates for households and businesses and lowered the exchange rate on the New Zealand dollar. 

"Low interest rates and increased government spending are expected to support a pick-up in domestic demand over the coming year.

"Household spending and construction activity are supported by low interest rates, while the incentive for businesses to invest will grow in response to demand pressures," Orr said. 

The Reserve Bank dropped the Official Cash Rate by 50 basis points (bp) to 1 percent in August, with many agreeing the cut was bigger than expected.

Slowing GDP growth, easing employment, weakened global economic activity and declining international trade were all cited as reasons for the bold move and it appears that not much has changed.  

On whether the Reserve Bank will cut the rate again this year, local economists told Newshub on Tuesday that the forecast is for a 25bp drop to 0.75 percent.  An ANZ economist predicts two further cuts for 2020.  

With the next OCR announcement due in November, The Reserve Bank can only wait for the dust to continue to settle and decide whether a further cut is needed to stimulate spending and restore much-needed confidence in the local economy.