Cash rate cut: PM, Treasurer celebrate end of ‘era of extreme price increases’

Prime Minister Christopher Luxon and Finance Minister Nicola Willis said the government’s actions had helped slow inflation, leading to Reserve Bank The cash rate was cut by 25 basis points.

It was the first cut in the cash rate in more than four years and commercial banks began reducing their rates almost immediately.

However, it Not very popular Some economists have criticized the policy, saying it is a significant departure from previous statements by the Reserve Bank of New Zealand.

Ms Willis said she was confident when she delivered the budget that her tax cuts would not stoke inflation, thanks to advice from Treasury.

“We owe it to New Zealanders to be disciplined and get value for their money … every New Zealander who loses their job is a New Zealander I worry about,” she said.

Luxon blamed the previous Labour government for the economic difficulties.

“Fundamentally, poor economic management and financial discipline created rampant domestic inflation and a rise in interest rates, which squeezed household and farm budgets. This squeeze led the country into recession and understandably higher unemployment,” he said.

He believes the government’s moves to remove the central bank’s previous mandate to consider employment impacts, reintroduce a 90-day trial period and scrap so-called fair pay agreement legislation have helped price stability.

He said signs of economic recovery were “encouraging, albeit premature.” He didn’t pay much attention to the numbers because he felt the country was in a recession.

“I’ve spoken to New Zealanders across the country and we’re in a recession, it feels like a recession, it’s a recession to them, so that’s our next focus now, we’ve got to get interest rates down, we’ve got to get economic growth back on track.”

Willis said in an earlier written statement that the central bank’s decision showed it was confident inflation was under control “and that the era of extreme price increases is over.”

“New Zealand has been suffering from a severe cost of living crisis since mid-2021, with weekly food budgets stretched, mortgage repayments high and confidence in living rooms, offices and meeting rooms low,” she said.

Nicola Willis
photo: RNZ/Samuel Rillstone

She is partly responsible for the economic transformation.

“This Government has delivered on our promise to New Zealanders – our carefully crafted plan to control inflation is working and we are seeing signs of economic recovery.”

But Labor’s finance spokeswoman Barbara Edmonds said there was good news and bad news.

She said while the cash rate cut would ease cost of living pressures, economic growth was slower than expected and unemployment would peak higher at 5.4 per cent.

“It’s a delicate balance and we remain concerned that tax cuts could be inflationary, while the central bank has said the ‘net effect of government spending cuts and income tax cuts on inflationary pressures is uncertain’.

“A small celebration is not worth the thousands of jobs lost or predictions of an imminent recession. The government must do more – it is actively making this situation worse.”

The Green Party said the government’s policies had contributed to community poverty, with co-leader Chlöe Swarbrick saying the Reserve Bank’s decision was good news for some people “but it will not help the estimated 23,000 children who have been pushed into poverty by the government”.

“This government is actively pursuing policies that will increase hardship and poverty. They are leaving thousands of people unemployed while cutting support for the unemployed and threatening them with sanctions. Welfare sanctions are a tried, tested and failed policy.”

She said the RBNZ’s monetary policy approach was a blunt tool, while fiscal policy – the government’s choices about taxation and spending – was what determined economic winners and losers.

“It is incredible that, with all the problems we face, this government has chosen to focus on making life harder for those struggling to survive. Of course, the Prime Minister I didn’t think to check average beneficiary income before anti-evidence, repressive policies were pursued.”