The Reserve Bank of New Zealand (RBNZ) has cut its official cash rate by 25 basis points to 5.25%. This is the first rate cut in over four years. The central bank has also signaled that more easing is likely in the future.
Watch the Monetary Policy Statement media conference live here at 3pm: https://t.co/BMwSeUXvR3#rbnz #MPS #monetarypolicystatement #OCR pic.twitter.com/FilmeAHVZW
— Reserve Bank of NZ (@ReserveBankofNZ) August 14, 2024
Expectations are that the rate could drop to 3.85% by the end of 2025. The unexpected move caused the New Zealand dollar to tumble, and markets began to anticipate a more aggressive easing path.
Today the Monetary Policy Committee agreed to reduce the Official Cash Rate by 25 basis points to 5.25%.
New Zealand’s annual consumer price inflation is returning to within our target band of 1-3%. The CPI is expected to remain near the target mid-point over the foreseeable… pic.twitter.com/7jDJ9iAQ6V
— Reserve Bank of NZ (@ReserveBankofNZ) August 14, 2024
Current market pricing suggests that the policy rate could be near 3.0% by 2025. This action aligns New Zealand with the global trend of monetary easing. Central banks worldwide are responding to slowing economic growth and inflation pressures.
Mortgage relief is on the way because we have delivered lower inflation, with the first OCR cut since March 2020 today.
— Christopher Luxon (@chrisluxonmp) August 14, 2024
The rate cut is expected to provide a modest boost to the Kiwi economy. It will lower borrowing costs for businesses and consumers.
RBNZ’s first rate cut in years
A surprise cut by the Reserve Bank of #NewZealand:
The central bank lowered interest rates by 0.25 percentage points to 5.25%, noting that "annual consumer price #inflation is returning within the Monetary Policy Committee's 1-3% target band" — this as #recession fears increase.…— Mohamed A. El-Erian (@elerianm) August 14, 2024
It may help revive the housing market, which has shown signs of cooling in recent months. However, some analysts have warned that the cut may not be enough to counteract broader global economic trends. The trade war between the U.S. and China casts a long shadow over international trade.
Ongoing geopolitical tensions are contributing to an uncertain economic outlook. Initial market reactions to the rate cut were mixed. In the immediate aftermath of the announcement, the New Zealand dollar weakened against the U.S. dollar.
This reflects market expectations of easier monetary policy. On the other hand, the New Zealand stock market showed a positive response. The NZX 50 index rose as investors welcomed the central bank’s proactive stance.
Looking ahead, the RBNZ has indicated that it remains vigilant and will continue to monitor economic indicators closely. Depending on the financial data and global economic developments in the coming months, further rate cuts have not been ruled out.
