Reserve Bank Governor Graeme Wheeler has cut the official cash rate to a record low of 2.5 per cent. We've also heard from him on state of the economy and outlook for next year. Here's six things we learned:
1. The Bank is still more worried about the housing bubble than deflation.
Graeme Wheeler and his team remain steadfast in their view that inflation will return to the mid-point of the target band (2%) later next year. They accept that they could get it back there quicker if they cut rates further. But they were quite explicit about fears that this could exacerbate the already overheated Auckland property market. There are plenty of critics out there that think the Bank is being too conservative. Both ASB and Westpac economists pick inflation won't rise and there will be further cuts in 2016.
2. The Bank is well aware that it can't please everyone.
"Monetary policy decisions are always tricky, partly because nearly everyone in the country seems to have a view," Wheeler said today.
It was a throw away line but a revealing one. It is literally impossible to please everyone with a rate decision. Savers want higher rates, borrowers want lower rates. Half the pundits think deflation threat is so serious they should cut harder, the other half think they are fuelling the housing bubble with the cuts they have made Exporters want cuts to help bring the dollar down. Importers and retailers prefer the opposite.
Still, nice to be reminded we still live in a country where people care about economics, it makes a change from the flag and the football.
3. The dollar is still too high
The Governor and his team made it clear today that they are unhappy with the persistently strong level of the currency. What happened next won't have impressed them.
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