OCR cut: What the governor said
Global economic growth remains moderate, but the outlook has been revised down due mainly to weaker activity in the developing economies. Concerns about softer growth, particularly in China and East Asia, have led to elevated volatility in financial markets and renewed falls in commodity prices. The US economy continues to expand. Financial markets remain uncertain as to the timing and impact of an expected tightening in US monetary policy.
Domestically, the economy is adjusting to the sharp decline in export prices, and the consequent fall in the exchange rate. Activity has also slowed due to the plateauing of construction activity in Canterbury, and a weakening in business and consumer confidence. The economy is now growing at an annual rate of around 2%.
Several factors continue to support growth, including robust tourism, strong net immigration, the large pipeline of construction activity in Auckland and other regions, and, importantly, the lower interest rates and the depreciation of the New Zealand dollar.
While the lower exchange rate supports the export and import-competing sectors, further depreciation is appropriate, given the sharpness of the decline in New Zealand’s export commodity prices.
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