New Zealand Steps Up Pace of Rate Cuts as Economy Weakens
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(Bloomberg) -- New Zealand’s central bank cut interest rates by half a percentage point, stepping up the pace of easing as policymakers become more concerned about the economic slowdown.
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The Reserve Bank’s Monetary Policy Committee lowered the Official Cash Rate to 4.75% from 5.25% Wednesday in Wellington, as anticipated by 19 of 23 economists in a Bloomberg survey. The remainder expected a quarter-point move. It is the RBNZ’s second straight reduction after it began its easing cycle with a quarter-point cut in August.
“The Committee agreed that the economic environment provided scope to further ease the level of monetary policy restrictiveness,” the RBNZ said. Future changes to the OCR will depend on the bank’s “evolving assessment of the economy,” it said.
New Zealand’s economy has stalled, unemployment is rising and house prices are falling as the prolonged period of high borrowing costs curbs demand. Economists say inflation is now slowing rapidly, and some have warned it may undershoot the 2% midpoint of the RBNZ’s 1-3% target range.
“The next move remains conditional on the data as always but there was nothing in today’s commentary to dissuade the market from continuing to price a follow-up 50 basis-point cut in November as the likeliest outcome,” said Sharon Zollner, chief New Zealand economist at ANZ Bank in Auckland. “That seems entirely fair, and is our forecast.”
The New Zealand dollar fell more than a quarter of a US cent after the decision to buy 61.06 cents at 3:20 p.m. in Wellington. Stocks extended gains to be up 1.6% while bond yields declined, with 10-year government securities falling as much as 5 basis points to 4.26%.
Today’s decision was a policy review, which is not accompanied by fresh economic forecasts or a press conference.
Changing Stance
The shift to bigger cuts represents another abrupt change of stance for the RBNZ.
It said in May it wouldn’t start easing policy until the second half of 2025, and after its Aug. 14 pivot Governor Adrian Orr said the bank intended to move “calmly” and at a “measured pace.”
The RBNZ’s latest forecasts in August showed the annual inflation rate falling to 2.3% in the third quarter from 3.3% in the second. That data is due Oct. 16.