Published: Fri, August 09, 2019
Money | By Ethel Goodwin

India, New Zealand, Thailand cut key rates

India, New Zealand, Thailand cut key rates

Last week, the US Federal Reserve cut rates for the first time in a decade, while the RBA eased in both June and July.

Capital Economics' Shilan Shah warned further policy loosening could be a misstep, and "lead to higher inflation and interest rates in the future".

Sally Auld, chief economist at JPMorgan in Australia, said there was a degree of pre-emptiveness about the move in New Zealand, given the nation's likely vulnerability if there were also moves to devalue the USA dollar. Australia last month cut its benchmark to 1% and economists see further reductions in both economies as domestic demand slackens and trade tensions between the USA and China threaten to curb exports and commodity prices.

But no-one anticipated that the Reserve Bank would slash 50 basis points off the already low OCR of 1.5%, effectively delivering two cuts in one.

In point fact, Wednesday's (August 7th) surprise move of RBNZ pulled the New Zealand Dollar down to a ten-month low figure to $0.6404 against its American counterpart.

A fall in domestic demand last quarter lowered India's growth rate to 5.8 percent, with unemployment at its highest since the 1970s. GBP/NZD Exchange Rate Forecast: Brexit and UK Politics in Focus amid Quiet New Zealand Economic Calendar Pound to New Zealand Dollar exchange rate investors are anxious about geopolitics and central bank news this week, and these factors are likely to remain in focus in the coming sessions. In the past, the RBNZ has only taken such drastic action after a major emergency, such as the 2011 Christchurch quake, or a financial meltdown like the GFC.

"This was a stunning decision", said Westpac's NZ chief economist Dominick Stephens, noting the rates have been cut by 50 basis points on only three other occasions.

Repositioning trade - ahead of RBNZ, might infuse some intraday volatility. Headline inflation is expected to gradually lift to the midpoint of the target band (2 percent) by Q4 2021 (previously by mid-2021).

'Growing global trade tensions and weak business and consumer confidence have weighed on economic growth, ' he said. "Spending can be investment, spending can be consumption, and it can be across many different sectors", Orr said.

Instead, citing compounding worldwide risks and sinking interest rates globally, the central bank cut rates to a fresh record low of 1% and governor Adrian Orr even raised the possibility of using negative interest rates in the future.

The projection implies the chance of another quarter-point cut. Another one was positive data from China - the world's second-largest economy and New Zealand's biggest trading partner. That raises the risk of non-standard policy eventually being deployed.

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