New Zealand’s Reserve Bank governor has hosed expectations for large-scale rate cuts

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There’s been a lot of pessimistic forecasts offered on the outlook for New Zealand’s economy lately.

Calls for a sharp slowdown in economic growth, substantial interest rate cuts and a significantly lower New Zealand dollar have come thick-and-fast from the likes of Goldman Sachs, Morgan Stanley and Capital Economics.

However, according to Reserve Bank of New Zealand governor Graeme Wheeler these predictions may be just a little too pessimistic, in his opinion at least.

Speaking to the ExportNZ/Tauranga Chamber of Commerce conference earlier today, Wheeler hosed down expectations for large-scale interest rate cuts in the months, telling the audience that such outcomes would be “consistent with the New Zealand economy moving into recession”.

Here’s Wheeler.

“We will review our growth forecasts in the September Monetary Policy Statement but, at this point, we believe that several factors are supporting economic growth. These include the easing in monetary conditions, continued high levels of migration and labour force participation, ongoing growth in construction, and continued strength in the services sector.”

Wheeler stated that in returning inflation to the RBNZ’s mid-point, around 2%, the bank was aiming to avoid unnecessary volatility in output, interest rates and the exchange rate.

“Our judgement in the current circumstances is that aiming to return inflation to around its medium-term target level in about nine to 12 months’ time is an appropriate speed of adjustment”, he said.

While Wheeler confirmed that some further monetary policy easing would likely to be required in the future, along with further exchange rate depreciation given falls in commodity prices key to the nation, the decidedly less-dovish tone of his address, along with continued financial stability risks associated with Auckland’s housing market, suggests calls for interest rates to fall as low as 2% may be wide of the mark, at least in his opinion.

Indeed, the New Zealand dollar certainly reflects that view in early trade this morning.

The Kiwi is up 0.58% against the US dollar, currently buying .6723.