The Reserve Bank of New Zealand (RBNZ) has cut its official cash rate (OCR) by 50 basis points to 4.75%, marking a major shift in its monetary policy stance. The move, while widely expected by markets (as discussed in our events guide), underscores the central bank’s growing concerns about economic growth and its confidence that inflation will return to target.
Key points:
- Reserve Bank of New Zealand cuts OCR by 50 basis points to 4.75%
- Inflation is close to the middle of the target range of 2%.
- GDP contracted in the second quarter, leading to strong easing
- The Reserve Bank of New Zealand has indicated the possibility of further interest rate cuts
Link to the Reserve Bank of New Zealand’s media statement
New Zealand dollar against major currencies: 5 minutes
Overlay of the New Zealand dollar against major currencies Chart by TradingView
In the Reserve Bank of New Zealand’s press release, the Monetary Policy Committee stated Weak economic activity thanks to its restrictive monetary policy. They also pointed this out Global economic activity appears to be decliningmost notably in the United States and China, while military action in the Middle East may be a headwind in the future.
Finally, the most notable commentary likely to influence future interest rate expectations is how The bank noted “lowering inflation expectations,” as wage and price growth has become more consistent with a low inflation environmentt, and expectations for eased business conditions in the future.
This was clearly taken as a pessimistic comment, which was indicated by the widespread decline in the New Zealand dollar, as traders will likely start pricing in higher odds of further interest rate cuts in the future. Sellers came in and doubled down with each attempted bounce, pushing the New Zealand dollar to close Wednesday’s session at nearly session lows.