Welcome to the cutting club, Kiwis By Reuters

(Reuters) – A look at the day ahead in European and global markets from Stella Qiu

The Reserve Bank of New Zealand is known for its tendency to surprise, and this time is no different.

On Wednesday, the RBNZ cut interest rates by 25 basis points to 5.25%, surprising most economists polled by Reuters. It was his first policy easing since March 2020 and a year earlier than his own forecasts.

As recently as May, he had seriously warned against more hiking, so the sudden reversal was a head turner. RBNZ chief Adrian Orr explained in a presser that “when the facts change, so do we.”

It is the latest major central bank to ease policy, following policymakers in Europe, Canada and Britain, and could be a signal to those still holding out against persistent inflation.

Yes, looking at you, Reserve Bank of Australia, which has all but ruled out any rate cut this year.

The RBNZ appears confident that New Zealand inflation, which was 3.3% last quarter, will return to the 1-3% target band this quarter and does not need to wait for the actual Q3 number to act.

Notably, it also projected a cash rate of 4.92% through December, meaning they see room to cut perhaps two more times by Christmas. Markets agree, already fully priced into another relaxation in October with some chance of a 50 basis point move.

The greenback fell correspondingly 1 percent, while key two-year swap rates fell 11 basis points to their lowest level since mid-2022.

Elsewhere, most Asian shares were buoyed by data showing that US producer prices rose less than expected, raising hopes that consumer price inflation would be benign later in the day.

European futures point to a higher open ahead of UK inflation figures, where the core annual rate is seen slowing even as the headline number rises. EUROSTOXX 50 futures rose 0.2 percent and gained 0.3 percent.

Adding to Asia’s busy news flow is the fact that Japanese Prime Minister Fumio Kishida will step down in September, ending a three-year term marked by rising prices and marred by political scandals.

The yen strengthened slightly and the benchmark index gave up gains to fall 0.2%, a modest reaction to political uncertainty.

Key developments that could influence markets on Wednesday:

— UK inflation data for July

— US CPI data for July

— Eurozone GDP, industrial production data

— Atlanta Fed President Raphael Bostic speaks

(By Stella Qiu; Editing by Jacqueline Wong)