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MORE OFFICIAL CASH RATE CUTS LIKELY - NZ

Tuesday October 20th, 2015

Global economic concerns mean more “easing” of the OCR is likely, even though this could further fuel the already-hot housing market, the Reserve Bank Governor has said.

In a speech to the Institute of Finance Professionals conference today, Reserve Bank Governor Graeme Wheeler said central banks were operating in a turbulent and uncertain world.

Global economic growth is the weakest since 2009 and inflation has also been below target over the past few years in the economies that target inflation.

Despite a significant slowdown in China’s economy, recent economic indicators [for New Zealand] have been more encouraging, Wheeler said.

“Some further easing in the OCR seems likely, but this will continue to depend on the emerging flow of economic data.”

However, with annual house price inflation in Auckland reaching 26% and house-price-to-income ratios double those in the rest of New Zealand, the RBNZ was concerned about how an OCR cut could affect the housing market.

“We remain conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation,” said Wheeler.

“It is important also to consider whether borrowing costs are constraining investment, and the need to have sufficient capacity to cut interest rates if the global economy slows significantly.”

The RBNZ has already cut the OCR three times since June this year and it is currently sitting at 2.75%.

Meanwhile, the latest house price data shows that Auckland house prices continue to rise – although price growth is now spreading to nearby regions.

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