RBNZ cuts rates by 50 bps, signals further easing

The Reserve Bank of New Zealand (RBNZ) cut its official cash rate (OCR) by 50 basis points to 4.75%, marking a significant shift in its monetary policy. This move, while widely anticipated by markets (as discussed in our Event Guide), underscores the central bank’s growing concerns about economic growth and its confidence that inflation will return to target.

Key points:

• RBNZ cuts OCR by 50 basis points to 4.75%
• Inflation is converging towards the 2% midpoint of the target range
• GDP contracted in the second quarter, prompting aggressive easing
• The RBNZ has signaled the potential for further rate cuts

Link to Reserve Bank of New Zealand press release

New Zealand Dollar vs Major Currencies: 5 min

NZD chart overlay against major currencies by TradingView

In the press release of the RBNZ, the Monetary Policy Committee quoted reduced economic activity due to its restrictive monetary policy. They also noted that global economic activity appears to be decliningparticularly in the US and China, while military action in the Middle East may be a headwind down the road.

Finally, the most notable comment that will likely influence the future rate outlook is how they noted “diminished inflation expectations”, with wage and price growth now more consistent with a low-inflation environmentt, and expectations regarding the relaxation of employment conditions in the future.

This was evidently seen as conciliatory commentary, signaled by the Kiwi dollar’s broad decline early on, as traders likely start pricing in a greater chance of further rate cuts. Sellers stepped in and doubled with each attempted pullback, sending the New Zealand dollar to close Wednesday’s session near session lows.