NEW Zealand’s central bank cut interest rates, embarking on an easing cycle much sooner than previously indicated as the economy slumps and inflation slows. The local dollar plunged.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee lowered the Official Cash Rate (OCR) by a quarter percentage point to 5.25 per cent on Wednesday (Aug 14) in Wellington. Nine of 23 economists in a Bloomberg survey anticipated the move, while 14 expected no change. The RBNZ’s new forecasts show the average OCR falling to 4.92 per cent in the fourth quarter and to 4.36 per cent by the middle of next year.
“New Zealand’s annual consumer price inflation is returning to within the Monetary Policy Committee’s 1 to 3 per cent target band,” the RBNZ said. “The pace of further easing will depend on the Committee’s confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the 2 per cent target.”
The RBNZ’s pivot to easing is a rapid change of tune after it said in May it considered raising rates and wouldn’t cut them until the second half of 2025. The bank’s concerns over sticky domestic inflation are being alleviated as the economy teeters on the brink of its third recession in less than two years and unemployment rises.
The New Zealand dollar fell to 60.34 US cents after the decision from 60.70 US cents beforehand. RBNZ governor Adrian Orr will hold a press conference at 3 pm local time.
Investors saw a 67 per cent chance that the RBNZ would cut rates today. BLOOMBERG
