RBNZ needs to lower cost of capital, weak kiwi not enough

One rate cut and comments from Reserve Bank of New Zealand (RBNZ) has pushed New Zealand dollar to its lowest since 2010 against dollar. However, weak exchange rate is yet to cushion the economic downturn, New Zealand is suffering with. New Zealand dollar is currently trading at 0.6780 against dollar.

Interest rate in New Zealand is highest among developed world at 3.25%, naturally there are enough wiggle room for RBNZ to provide further easing.

RBNZ needs to react fast decisively and beyond verbal intervention.

Why?

• Though economic growth remains high, slowdown in growth expectations have been relatively fast paced.
  
  
• With Chinese economic slowdown continuing, there seems to be no respite for New Zealand's exports.
  
  
• With global commodity prices showing no signs of fast recovery, New Zealand's dairy farmers are likely to suffer further.

While weak New Zealand dollar, against major counterparts are surely beneficial in making exports relatively cheaper, but it increases the import cost along with.

New Zealand needs fast reduction of cost of capital, which can be delivered by faster reduction in OCR.