RBNZ sees slower growth, earlier drop in inflation

The Reserve Bank of New Zealand warned of a further slowing of the economy and an early return of inflation to the 1-3% target band because of the global financial turmoil and lower consumer spending as it cut the OCR by 100 bps to 6.5%. "Economic activity will be further constrained, relative to the outlook presented in our September Monetary Policy Statement, by these international developments," Reserve Bank Governor Alan Bollard said. The Reserve Bank forecast GDP growth of 0.5% and 2.3% for the 2009 and 2010 "New Zealand can expect to face lower demand for exports and credit is less likely to be readily available," Bollard said. "In this environment consumers and businesses are likely to be more cautious and curtail spending." "The reduction in domestic spending will be partly offset by the depreciation of the New Zealand dollar over the past few months, falling oil prices and the recent loosening of fiscal policy. With weaker short term growth and sharply lower oil prices we now expect that annual CPI inflation will return to the target band of 1-3% around the middle of 2009."