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Reserve Bank of New Zealand to release interest rates

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Reserve Bank of New Zealand to release interest rates

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Photo: David Gray/Reuters

The Reserve Bank of New Zealand (RBNZ) will release its final interest rate decision for the year today.

The RBNZ is expected to hold its overnight rate at 0.25% in recognition of the country’s tenuous economic condition. Despite daily life largely returning to normal as a result of aggressive lockdown measures, New Zealand is still firmly in a recession, with its economy contracting 12.2% in the second quarter. That shock has been tempered by steady prices for key agricultural exports, such as beef and lamb. Furthermore, some forecasts for next year are being revised as demand in some international markets, particularly China, returns slowly to pre-pandemic levels. For instance, New Zealand’s Fonterra, the world’s largest dairy exporter, raised its 2021 price forecast by 6%.

However, the RBNZ is still grappling with how to best address the short-term risks of a sharp rise in layoffs and corporate bankruptcies. Looming debt repayments and low unemployment may have been masked by now-expired consumer protections, such as the wage subsidy scheme. RBNZ Governor Adrian Orr has expressed willingness to utilise a zero or negative rate should the economy worsen significantly. But do not expect such a rate to be deployed until the beginning of next year at the earliest.

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