New Zealand Central Bank Leaves Cash Rate Unchanged Case Solution

The Reserve bank of New Zealand states that inflation rate is not expected to move below 1% and above 3% until September 2016 quarter. Due to high exchange rate, low global inflation rate and falls in oil prices, inflation rate are brought down in New Zealand. High exchange rate, low global inflation rate and low global inflation rate will not let he inflation rate goes up that is why it is coming towards downwards and will remain in between the range of 1% to 3%.

Central bank has not changed the cash rate. Official cash rate will remain unchanged at 3.5%. The Reserve bank of New Zealand has not changed the rates, instead it has kept rates unchanged and stated that any future move will be made on the basis of economic data it means future moves depends on the economic data.(HOWARD,2015)

The Reserve bank stated that their central projection are established and there are consistent with that period where stability exist in official cash rate. They also stated that whether future interest rate adjustments will go up or down, it would totally depend on the flow of economic data.  It means the vulnerability of future interest rate relates to flow of economic data. Currently they are not changing cash interest rate and will keep it unchanged at 3.5%.

Expected rates will remain unchanged. Through the wall street journal eleven economists out of thirteen economists voted that expected rate will remain same. Rate may be reduced, the chances of rate to be reduced is only 5%. Monetary policy of more than 20 central banks have been made easier since the starting of this year. Countries, that ease their monetary policy, are Australia, Sweden, Russia and Canada, etc.

It is also statedby Mr. Wheeler, the governor of Reserve bank in New Zealand, that high exchange rates, fall in oil prices and low global inflation rate are moving inflation down in New Zealand. The annual inflation are expected to reduce to approximately zero in the March quarter in comparison with a last year and inflation will remain low in 2015.

Central bank’s monetary policy statement shows that interest rate will not change, they will remain stable in that environment. Interest rates are expected to be stay at current levels. The term of official cash interest rate are used in New Zealand and Australia. It is the bank rate and rate of interest. Commercial banks are charged for taking overnight loans from the central bank.

Official cash interest is the money market interest rate that is charged on commercial banks for overnight loans. Commercial banks pay the interest for taking out a loan with a maturity of one day to another bank. The interest rate is used for commercial banks is the official cash interest rate.

Price of borrowing money in New Zealand depends on the official cash rate. The Reserve bank set the official cash interest rate in order to meet the inflation target that is mentioned in the policy targets agreements. The official cash interest rate provides the way to the Reserve bank to maintain the level of economic activity and inflation. There are various tools which were used by the Reserve bank to maintain the inflation and that tools were very difficult to understand(2015.

People’s spending becomes less on goods and services, when the market interest rate increases. Market interest rate effects the spending and savings of people. If there is a higher interest rate, people will spend less and save money. Save money are deposited into the bank account and it enables them to get high return on their deposits due to increased market interest rate………………….

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New Zealand Central Bank Leaves Cash Rate Unchanged Case Solution
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