New Zealand’s central bank held interest rates at a record low on Wednesday but said it was ready to step in with stimulus to support the struggling economy.
The Reserve Bank of New Zealand kept borrowing costs at 1.0 percent, confounding forecasts for a cut to 0.75 percent.
Officials said that since its last reduction in August economic developments “do not warrant a change to the already stimulatory monetary setting at this time”, although the immediate future did not look promising.
“Economic growth continued to slow in mid-2019 reflecting weak business investment and soft household spending. We expect economic growth to remain subdued over the remainder of the calendar year,” the bank said in a statement.
“Interest rates will need to remain at low levels for a prolonged period to ensure inflation reaches the mid-point of our target range and employment remains around its maximum sustainable level.” It said it would “add further monetary stimulus if economic developments warranted”.
Policymakers expected domestic economic activity to increase next year “supported by low interest rates, higher wage growth, and increased government spending and investment”.
However, Kiwibank chief economist Jarrod Kerr, who had expected a cut to 0.75 percent with a further reduction in February, said lending rates would likely rise by holding the official cash rate firm.
“We can expect to see higher lending rates by the end of the week,” he said.
“The Kiwi currency would also lift with the relative rise in Kiwi interest rates, impacting the export sector.” The central bank announcement saw the New Zealand dollar jump around 1.6 percent to 64.2 US cents.