Bloomberg News

N.Z. Holds Benchmark Rate at 2.5% as Wheeler’s Term Begins

October 24, 2012

New Zealand’s central bank extended a period of record-low borrowing costs that began in March last year as the nation faces slowing economic growth and weaker demand for exports.

Reserve Bank Governor Graeme Wheeler left the official cash rate at 2.5 percent, according to a statement today after a meeting in Wellington. The decision was the first for the former World Bank official who took over from Alan Bollard in late September.

Slowing global growth is hurting demand for New Zealand’s exports, which make up about 30 percent of the country’s gross domestic product. Sluggish domestic demand and a rising currency have pushed inflation below the central bank’s 1 percent to 3 percent target range, leading economists to predict Wheeler may consider a rate cut.

“We see the softer domestic data and the firmer New Zealand dollar increasing the chance of a cash rate cut down the track,” Doug Steel, economist at Bank of New Zealand Ltd. in Wellington, said ahead of the statement. “The odds of a cut over coming quarters we would put as high as 40 percent.”

Today’s decision was forecast by all 17 economists in a Bloomberg News survey. New Zealand’s dollar gained, buying 81.72 U.S. cents at 9:01 a.m. in Wellington from 81.51 cents immediately before the statement.

Wheeler resisted pressure from the Council of Trade Unions to counter the New Zealand dollar’s 4.7 percent gain this year by cutting borrowing costs today. Calls for a rate cut mounted after consumer prices rose 0.8 percent in the 12 months through September, the slowest pace since 1999.

Bollard held the cash rate at 2.5 percent to allow the economy to recover after the nation’s deadliest earthquake in 80 years. The February 2011 temblor struck Christchurch, New Zealand’s third-largest city, and the surrounding Canterbury province, killing 185 people and closing the central city.

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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