The Reserve Bank is cutting New Zealand’s official cash rate (OCR) by another 50 basis points to 4.75% – the lowest it has been since February 2023.
The move follows the central bank’s 25 basis point cut in August and matches what many economists and financial analysts had been predicting.
In announcing the cut, the central bank says that annual consumer price inflation is within its 1% to 3% inflation target range and converging on the 2% midpoint.
“Economic activity in New Zealand is subdued, in part due to restrictive monetary policy.
“Business investment and consumer spending have been weak, and employment conditions continue to soften. Low productivity growth is also constraining activity,” the Monetary Policy Committee (MPC) says.
“Some exporters have benefited from improved export prices. However, global economic growth remains below trend.”
The committee says the outlook for the United States and China is for growth to slow, while geopolitical tensions “remain a significant headwind for world economic activity”.
“The New Zealand economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy. Lower import prices have assisted the disinflation.”
The committee agreed that a cut to the OCR by 50 basis points would achieve and maintain “low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate”.
ANZ notes that the Reserve Bank’s tone “leaned towards the dovish side” around the inflation outlook and this allows the market to anticipate a further 50bp cut in November.
“That is also our forecast, though one has to characterise any forecast as highly conditional on the data between now and then, including CPI next week and the Household Labour Force Survey in early November,” ANZ says.
