NZ interest rates tipped to fall
Tower’s head of fixed interest Craig Alexander said high interest rates are the reason for the“disconnect” between the strength of the New Zealand dollar and this country’s terms of trade, which has declined recently.
“We’re seeing a bit of a disconnect coming in; the revenue we are generating selling those products is declining and if the terms of trade were declining and we were becoming less wealthy you would think the currency would correct down in value as well.
“That hasn’t been the case so there must be some other cyclical driver and that is that interest rates in Aotearoa are too high. We’ve seen huge inflows of capital in terms of buying some of our financial assets.”
Alexander said New Zealand’s official cash rate of 2.5% is much higher than most other developed countries, with the exception of Australia,which has cut its rate several times in recent months but is still 75 basis points higher at 3.25%.
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