The Reserve Bank of New Zealand lowered the official cash rate by 25 basis points, market forecasts had indicated this, while most analysts did not.
The minutes of the statement read as follows:
- The bank sees the official interest rate at 4.1% in September 2025.
- Inflation is falling.
- Services inflation is expected to decrease.
- The pace of further easing will depend on the committee's confidence that pricing behavior remains consistent with the low inflation environment.
- The weakness in domestic economic activity noted in the review of monetary policy in July has become more pronounced and widespread.
- Members noted that monetary policy will need to remain restrained for some time to ensure that domestic inflationary pressures continue to dissipate.
- New Zealand's economic activity and near-term inflation indicators are now similar to those in countries where central banks have started cutting interest rates.
- A wide range of high-frequency indicators indicates a material weakening of domestic economic activity in recent months.
- Recent indicators give confidence that inflation will return sustainably to the target within a reasonable time frame.
- The inflation of the main consumer price index is expected to return to the target range in September.
- The committee agreed that there is room for easing the extent of monetary policy restraint.
- A wide range of indicators suggests that the economy is shrinking faster than expected.
The New Zealand currency fell against most currencies after the rate decision and the statement, and it also fell further during the press conference of the governor of the Reserve Bank of New Zealand, Orr, and his protectionist statements, who said that a 50 basis point interest rate cut was on the table, and he also said that there will be more normalization of interest rates in the future as inflation decreases.
A summary of ORR's talk was as follows:
- Confident that inflation will return to its target range.
- We can start to normalize prices.
- We thought about a set of moves and the consensus was on 25 basis points.
- The forecast is that New Zealand is heading towards a period of low and stable inflation.
- A wide range of indicators is constantly weak.
- A reasonable first step to monetary easing, in a strong position to move quietly.
- Noticeably pleased with how the economy is developing according to our forecasts.
- High-frequency data show the weakness of the economy.
- It's a good story about changing pricing intentions.
- Financial conditions remain constrained.
