NZ central bank chief signals two more cuts by Christmas, more in 2025 By Reuters

By Lucy Craymer

WELLINGTON (Reuters) – New Zealand’s central bank governor Adrian Orr on Friday raised the distinct prospect of cutting rates by another 50 basis points by the end of the year, saying “I’d be happy to offer that,” in explicit comments that set the course for decisive policy relaxation. .

New Zealand’s Reserve Bank cut its benchmark rate by a quarter of a percentage point on Wednesday for the first time since March 2020, surprising some market players and signaling more cuts in the coming months as inflation neared 1% to 3% target.

In a speech at the Wellington Chamber of Commerce, Orr said he was confident New Zealand had returned to an environment of low and stable inflation.

“There are two more opportunities for two more cuts between now and Christmas and all things going in line with the data and what we’re talking about, then I’d love to offer that,” he said.

The central bank chief added that his preference is for further tapering to continue until 2025, supporting economists’ expectations for a series of cuts next year.

The RBNZ’s own guidance put the official cash rate at 3.85% until the end of 2025, up from 5.25% now, while the market is pricing in 3.0% by then.

A Reuters poll published on Thursday showed most economists expect the central bank to cut interest rates by 50 basis points by the end of the year.

New Zealand is joining a global policy easing campaign that includes the European Central Bank, the Bank of Canada and the Bank of England as major central banks roll back their hefty hikes from 2022 to fight flaring inflation. The US Federal Reserve is expected to start cutting rates next month.

Deputy Governor Karen Silk told Reuters in an interview that her decision to support Wednesday’s cut was driven by several facts.

“We have high-frequency indicators that are much weaker, and this is not one. There were mixed signals from this previously, but now they all point to weaker activity in the economy and weaker than we anticipated,” Silk said.

The RBNZ is forecasting a recession for New Zealand this year, leaving policymakers to focus on stabilizing the economy amid weak domestic demand and a challenging global growth environment.

Silk added that all possible rate decisions were “on the table” on Wednesday, including a further cut, but with New Zealand’s political cycle at a turning point, “there are still some uncertainties sitting there”.