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RBNZ cuts interest rate for fourth time

The RBNZ has cut interest rate at meeting this Wednesday, as it was expected. It was the fourth cut by the regulator this year, which shows decisiveness of the bank to support economic growth, despite possible monetary policy toughening in the US.


This time the RBNZ has cut interest rate to 2.5% and levelled all rate hikes during the past year. Inflation remains to be at low rate at minus 0.4 per cent, however Graeme Wheeler expresses optimism, expecting inflation to return to target 1-3% in 2016.


Even in September the RBNZ was ready to adopt necessary measures in the nearest future, and analysts expected that step to be adopted in December. A survey released by the WSJ show a 65% likelihood of rate cut.


Low inflation, commodity prices and overestimated national currency forced the RBNZ to cut rate. The bank based in its decision on a drought in summer 2016, which is a negative factor for farm productivity. It was an additional reason to ease monetary policy.


Dynamics of NZ dollar, which has been strengthening against other main currencies, put a negative impact on import prices. Graeme Wheeler reiterated that growth of national currency harmed the economy, and further fall of currency would be necessary.