The Reserve Bank of New Zealand cut the cash rate by 50 basis points as widely expected, the most important points of the RBNZ statement were:
- The committee stressed that future changes in the official interest rate will depend on its assessment of the economy.
- The committee agreed that the excess capacity has softened inflation expectations, and price and wage changes are now more consistent with the low inflation environment.
- The members agreed that the official interest rate of 4.75% remains restrained and leaves monetary policy in a good position to deal with any surprises in the near term.
- Annual consumer price inflation in New Zealand is currently within the committee's target range of 1 to 3% and is expected to converge with the target midpoint.
- The committee discussed the benefits of reducing the interest rate by 25 basis points versus reducing it by 50 basis points, and agreed to reduce by 50 basis points at this time is the most harmonious in light of the decline and stability of inflation.
- The committee agreed that the monthly price indicators indicate a continued decline in consumer price inflation in New Zealand.
- The committee agreed that the economic environment provided room for further easing the level of restrictions on monetary policy.
- Labor market conditions are expected to improve further.
- Financial conditions remain constrained, the demand for credit remains weak.
After this meeting, the New Zealand dollar fell to its lowest level in 7 weeks on Wednesday after the central bank intensified easing measures by cutting interest rates by half a percentage point, which led to a decline in bond yields.
The markets had already predicted almost 100% odds of a half-point interest rate cut, and rates are expected to reach 3.0% by the end of 2025.
As today's meeting did not provide an updated forecast and was not accompanied by a press conference, the forward guidance in the decision statement seemed lenient, allowing the RBNZ the flexibility to cut interest rates again before the end of the year.
