Bloomberg News

N.Z. Will Keep Record-Low Cash Rate Until Early 2014, NZIER Says

May 29, 2012

New Zealand’s central bank will keep the official cash rate at a record-low 2.5 percent until early 2014 because of falling exports and increasing global risks, the New Zealand Institute of Economic Research said.

The Reserve Bank may cut interest rates if the European debt crisis worsens, Shamubeel Eaqub, principal economist at the Wellington-based organization, said in a report today. In March, he forecast a rate rise in mid-2013.

New Zealand’s economy will grow 1.5 percent this year and 2.5 percent in 2013 as reconstruction of earthquake-damaged Christchurch and the surrounding province of Canterbury accelerates, NZIER predicted. Traders are pricing in a 45 percent chance of a quarter-point rate cut at the central bank’s next review on June 14, according to interest-rate swaps data compiled by Bloomberg late yesterday.

“There is little economic growth and the outlook is challenging,” Eaqub said. “Low interest rates are not encouraging new borrowing and investing.”

Consumers are paying down debt rather than spending because job and wage growth are subdued, Eaqub said. The deleveraging trend may continued for another three years, he said.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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