RBNZ cuts interest rates by 25 bps, citing progress in inflation and weak growth By Investing.com

Investing.com– The Reserve Bank of New Zealand unexpectedly cut interest rates on Wednesday, citing recent progress in meeting its annual inflation target and as local economic growth remained weak.

The RBNZ cut to 5.25% from 5.5%, avoiding expectations that it would hold the rate steady for the ninth consecutive meeting. But some analysts were expecting a potential rate cut after the central bank struck a somewhat dovish tone at its previous meeting in May.

The RBNZ signaled progress in bringing consumer price inflation back to its 1% to 3% target – a message it reiterated on Wednesday. Inflation is expected to fall within the bank’s target range in the September quarter, the RBNZ said.

But the bank noted that the country’s economic growth remained sluggish, especially amid weak export demand in top market China. The RBNZ also signaled the potential for rising import prices to boost inflation.

The central bank noted that market expectations were for a 100 basis point rate cut by mid-2025. But the bank reiterated that any further changes in interest rates would be largely determined by future economic readings.

Wednesday’s cut saw the RBNZ join some of its global peers in cutting interest rates as a post-Covid inflation pick-up faded. The central bank was the first of its peers to raise rates after the pandemic, raising them in mid-2021.

But the RBNZ’s efforts to reduce inflation were hampered by a series of adverse weather conditions in early 2023, which caused a temporary spike in inflation.

The New Zealand dollar weakened sharply after Wednesday’s cut, with the pair down nearly 0.7%.