New Zealand PM Supports Larger Interest Rate Cut by Reserve Bank to Boost Economy
New Zealand Prime Minister Christoper Luxon believes the Reserve Bank should have gone farther and pushed for a 50-basis-point cut in the OCR. Luxon agreed with NewstalkZB anchor Mike Hosking that the central bank could have been more daring.
Instead, in a 4-2 vote on Wednesday, the RBNZ cut the rate by 25 basis points, lowering it to 3%, its lowest level since 2021. Nonetheless, the bank anticipates that the OCR will decline to 2.5% by December.
Luxon engaged with RBNZ Governor Christian Hawkesby about taking a more aggressive approach
Luxon stated before the rate announcement that he discussed the New Zealand economy with RBNZ Governor Christian Hawkesby. When asked if he encouraged the governor to make a bigger move, he replied, "Pretty much, yes." He did say, "I can give my views, but I respect the independence of the Reserve Bank under legislation."
New Zealand law goes to considerable measures to maintain central bank independence, and it is unusual for a prime minister or cabinet minister to make public comments on interest rate decisions. Reflecting on this concept, ECB President Christine Lagarde warned over the weekend that political intervention in monetary policy might destabilise economies.
The RBNZ paused cuts in July, unsure how much new inflation pressures were accumulating at home and how US tariffs were reverberating around the world. Last week, policymakers said the inflation picture was clearer, and with the New Zealand economy likely to contract in the June quarter, there was more cause to cut rates. However, Hawkesby painted a skewed picture of the country, with provinces experiencing a rural economic revival while Auckland and Wellington struggled.
Retail volumes in New Zealand climbed by 0.5% in the three months to June
According to Statistics New Zealand, retail sales increased by 0.5% in Q2, compared to economists' expectations of a 0.3% decline. The stronger outcome indicates that households are beginning to respond to reduced interest rates, providing the economy with new energy.
Household spending has risen for three consecutive quarters. Nonetheless, the Reserve Bank predicted a 0.3% drop in activity last week, which served as the basis for lowering the Official Cash Rate to 3% and projecting a 2.5% drop in December.
Satish Ranchhod, a senior economist at Westpac, believes the current spending increases indicate a turning point. He added, "While the retail sector is currently dealing with some difficult trading conditions, we are beginning to see evidence that the long-awaited rebound is taking shape. This includes gains in discretionary areas. However, it is still a mixed picture, with spending in areas such as hotels remaining stagnant."
Retail spending was driven by a 4.6% increase in electrical products, with furniture, floor coverings, and recreational items also enjoying strong growth. On the other hand, hotel expenditure declined 2.1%, and food and beverage purchases fell for the second quarter in a row.
Since August, the Reserve Bank has cut the cash rate by a whopping 250 basis points. Policymakers expect that lower mortgage rates will put more money back into households' pockets, allowing them to continue spending. Nonetheless, experts warn that a softer employment market may cause consumers to think twice before opening their wallets.
As previously reported by Cryptopolitan, New Zealand's unemployment rate jumped to 5.2% in the second quarter, the highest level since the early post-COVID rebound in late 2020. The figure, a tiny increase from 5.1% in the first quarter, fell just short of economists' projection of 5.3% but reflects mounting concerns about an economic slowdown.
Employment declined 0.1% in the quarter, as expected, and is another sign of weakening momentum. According to Abhijit Surya, senior economist at Capital Economics, the RBA will not be overly comforted by the minor increase in unemployment, but instead focus on indications of spare capacity accumulating in the labour market.
Instead, in a 4-2 vote on Wednesday, the RBNZ cut the rate by 25 basis points, lowering it to 3%, its lowest level since 2021. Nonetheless, the bank anticipates that the OCR will decline to 2.5% by December.
Luxon engaged with RBNZ Governor Christian Hawkesby about taking a more aggressive approach
Luxon stated before the rate announcement that he discussed the New Zealand economy with RBNZ Governor Christian Hawkesby. When asked if he encouraged the governor to make a bigger move, he replied, "Pretty much, yes." He did say, "I can give my views, but I respect the independence of the Reserve Bank under legislation."
New Zealand law goes to considerable measures to maintain central bank independence, and it is unusual for a prime minister or cabinet minister to make public comments on interest rate decisions. Reflecting on this concept, ECB President Christine Lagarde warned over the weekend that political intervention in monetary policy might destabilise economies.
The RBNZ paused cuts in July, unsure how much new inflation pressures were accumulating at home and how US tariffs were reverberating around the world. Last week, policymakers said the inflation picture was clearer, and with the New Zealand economy likely to contract in the June quarter, there was more cause to cut rates. However, Hawkesby painted a skewed picture of the country, with provinces experiencing a rural economic revival while Auckland and Wellington struggled.
Retail volumes in New Zealand climbed by 0.5% in the three months to June
According to Statistics New Zealand, retail sales increased by 0.5% in Q2, compared to economists' expectations of a 0.3% decline. The stronger outcome indicates that households are beginning to respond to reduced interest rates, providing the economy with new energy.
Household spending has risen for three consecutive quarters. Nonetheless, the Reserve Bank predicted a 0.3% drop in activity last week, which served as the basis for lowering the Official Cash Rate to 3% and projecting a 2.5% drop in December.
Satish Ranchhod, a senior economist at Westpac, believes the current spending increases indicate a turning point. He added, "While the retail sector is currently dealing with some difficult trading conditions, we are beginning to see evidence that the long-awaited rebound is taking shape. This includes gains in discretionary areas. However, it is still a mixed picture, with spending in areas such as hotels remaining stagnant."
Retail spending was driven by a 4.6% increase in electrical products, with furniture, floor coverings, and recreational items also enjoying strong growth. On the other hand, hotel expenditure declined 2.1%, and food and beverage purchases fell for the second quarter in a row.
Since August, the Reserve Bank has cut the cash rate by a whopping 250 basis points. Policymakers expect that lower mortgage rates will put more money back into households' pockets, allowing them to continue spending. Nonetheless, experts warn that a softer employment market may cause consumers to think twice before opening their wallets.
As previously reported by Cryptopolitan, New Zealand's unemployment rate jumped to 5.2% in the second quarter, the highest level since the early post-COVID rebound in late 2020. The figure, a tiny increase from 5.1% in the first quarter, fell just short of economists' projection of 5.3% but reflects mounting concerns about an economic slowdown.
Employment declined 0.1% in the quarter, as expected, and is another sign of weakening momentum. According to Abhijit Surya, senior economist at Capital Economics, the RBA will not be overly comforted by the minor increase in unemployment, but instead focus on indications of spare capacity accumulating in the labour market.