The New Zealand government bonds closed higher Tuesday after the Reserve Bank of New Zealand Governor Graeme Wheeler said that current economic estimates further showed a need for 35 basis points of monetary easing. Also, tumbling crude oil prices drove investors towards safe-haven buying.
The yield on the benchmark 10-year bond fell 3 basis points to 2.275 percent and the yield on 7-year note also closed 1-½ basis points lower at 1.965 percent and the yield on short-term 2-year note slid 2 basis points to 1.790 percent.
In a speech written for the Otago Chamber of Commerce, Mr Wheeler said that if inflation expectations fall too far, it can be very difficult to raise them back up. In such a situation, even further cuts in interest rates would be needed to stimulate economic activity and increase inflationary pressures.
However, an aggressive monetary policy that is seen as exacerbating imbalances in the economy would not be regarded as sustainable, and would not deliver the exchange rate relief being sought, he added.
He further added that the present judgement is that the current interest rate track, involving an expected 35 basis points of further interest rate cuts, balances a number of risks weighing on the economy, while generating an increase in CPI inflation back towards the mid-point of the 1 to 3 percent target range.
Moreover, the Kiwi bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Reserve Bank of New Zealand's target.
The crude oil prices declined more than 3 percent as Iraq prepared to increase its exports and renewed concerns that upcoming producer talks will not rein in oversupply. Also, worries about expanding Chinese fuel exports dragged oil prices. The International benchmark Brent futures fell 1 percent to $48.67 and West Texas Intermediate (WTI) dipped 1.27 percent to $46.81 by 05:00 GMT.
Meanwhile, the New Zealand’s benchmark S&P/NZX50 Index closed up 5.17 points to 7,467.33.
