New Zealand Cuts Rates to Fight Off Deflation

Industrial production in the United Kingdom rebounded in January as the Office for National Statistics reported monthly growth of 0.30% after having contracted the previous 2 months. The value came in higher than December’s -1.10% but missed expectations of 0.50%. The boost came specifically from manufacturing, climbing from the prior month’s revised value of -0.30% to 0.70% in January. Although a positive result, analysts anticipate that the rebound will be short lived with the sector facing pressure from shrinking global demand and weak energy prices impacting North Sea oil and gas production. Adding to the risks to the outlook is a possible exit from the European Union in June, potentially leading foreign manufacturers to relocate due to taxation issues. The Pound moved slightly higher versus the US dollar over the session, continuing its climb and reaching a price of 1.4240 before retreating.

In an unexpected move by the Reserve Bank of New Zealand, central bank governor Graeme Wheeler along with his board members opted to cut interest rates by 25 basis points, dropping the benchmark from 2.50% to 2.25%. Problems with restoring inflation combined with the growing uncertainty of the Chinese economy is broadly impacting countries across the Asia-Pacific region.  Weak commodities prices and volatile financial markets have seen rising anxiety among central bank officials concerned about the domestic economic outlook. The developments are reflected by the country’s consumer price index rapidly approaching deflationary territory, with the governor once again reiterating that the central bank is willing to intervene further with additional stimulus in order to help boost inflation.  The New Zealand dollar slumped on the announcement, falling as low as 0.6619 versus the US dollar before bouncing.