HomeLive CommentsRBNZ Hawkesby: It would be better to do too much too early

RBNZ Hawkesby: It would be better to do too much too early

RBNZ Assistant Governor Christian Hawkesby explained the decision of the surprised -50bps rate cut in speech today. He said “we judged that it would be better to do too much too early, than do too little too late”. The alternative approach of cutting by -25bps “risked inflation remaining stubbornly below target, with little room to lift inflation expectations later with conventional tools in the face of a downside shock.”

On the other hand, “a more decisive action now gave inflation the best chance to lift earlier, reducing the probability that unconventional tools would be needed in the response to any future adverse shock.”

Hawkesby also noted that neutral rate is currently in a “wide range centred on 3.25 percent, down from around 5 percent before the GFC”. And, “all else equal, a lower neutral rate implies that we need to set our Official Cash Rate lower to deliver the same amount of monetary stimulus to the economy.”

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