The Reserve Bank of New Zealand surprised the markets and analysts by holding the interest rates. There had been a popular expectation that the central bank was going to cut rates. However, the Bank sprang a surprise and stated that there are indications that the slowdown in the economy is going to. It added that inflation would also pick up, thereby making a rate cut unnecessary. The news may have come as a bit of a shock for the markets, but the New Zealand dollar jumped three quarters once the news broke.
The official cash rate in the country had been held at a historic low of just 1% by the central bank, and hence, the latest step does not come as a complete surprise. In a statement, the central bank stated,
“Economic developments since the August Statement do not warrant a change to the already stimulatory monetary setting at this time. We will add further monetary stimulus if needed.”
Earlier this year, many of the central banks across the world had cut interest rates, but since last month there has been a definite shift in strategy.
Back in October, the United States Federal Reserve paused the interest rates, and soon after, the Australian central bank did the same. New Zealand had been at the forefront of the liberal rate cuts when it did so back in May. However, the central bank is now rather keen to figure out the impact of these rate cuts before moving in with more cuts. The central bank added that there were extensive debates within the committee with regards to the whole thing.
The monetary policy committee took the decision. The committee stated,
“The committee agreed that both actions were broadly consistent with the current OCR projection. The committee agreed that the reduction in the OCR over the past year was transmitting through the economy and that it would take time to have its full effect.”
The pause in the interest rates could be the new policy for many of the central banks all over the world as they assess the impact of the deep cuts that have taken place over the past few months.