New Zealand Central Bank Cuts Key Rate By 50 Bps

(RTTNews) - The Reserve Bank of New Zealand slashed its benchmark rate by 50 basis points on Wednesday, as inflation is converging to the target midpoint, while economic growth is expected to remain subdued in the near term amid restrictive monetary policy.

The Monetary Policy Committee led by Governor Adrian Orr, decided to reduce the Official Cash Rate to 4.75 percent from 5.25 percent. The outcome of the meeting matched expectations.

Previously, the bank had reduced the interest rate by 25 basis points in August, which was the first cut since March 2020.

"The Committee agreed that it is appropriate to cut the OCR by 50 basis points to achieve and maintain low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate," the bank said in the statement.

"The Committee confirmed that future changes to the OCR would depend on its evolving assessment of the economy," the bank added.

Policymakers observed that inflation is currently within the 1-3 percent target band and it is expected to converge to the 2 percent target midpoint.

The committee discussed the benefits of both 25 basis point and 50 basis point cut in the OCR. They said the key rate at 4.75 percent is still restrictive and leaves monetary policy well-placed to deal with any near-term surprises.

Capital Economics' economist Abhijit Surya said the RBNZ is likely to hand down a couple more 50bp rate cuts over the next few months.

Moreover, the economist said looking further ahead, the RBNZ is set to lower its OCR to a trough of 2.25 percent by end-2025, which is markedly below the 3.00 percent terminal rate predicted by the analyst consensus.