When the Reserve Bank of New Zealand (RBNZ) surprised markets by cutting interest rates in March a further interest rate reduction was built into the interest rate projections. At that time we suggested it would be strength in the exchange rate that would be the catalyst for that to be delivered, while renewed strength in the housing market was the most likely factor that would lead to its demise.
Indeed when the Bank cut in March, we thought they were being overly sanguine about the housing market. While that appears to confuse two objectives - the inflation target and financial stability - we thought the reward of higher inflation from a further interest rate reduction was dwarfed by the risk to financial stability of further inflating the housing market. Click here to read more.
By: Bevan Graham | Source: AMP Capital | 07 June 2016
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