New Zealand’s central bank has reduced its benchmark interest rate by 50 basis points, marking the second consecutive rate cut this year. The Reserve Bank of New Zealand (RBNZ) lowered its official cash rate from 5.25% to 4.75% during its latest monetary policy meeting, a move widely anticipated by economists surveyed by Reuters.
This decision follows an unexpected 25 basis-point cut in August, when the RBNZ indicated that the future pace of monetary easing would depend on its confidence in achieving a low-inflation environment. In its Wednesday statement, the RBNZ noted that annual consumer price inflation is now within its target range of 1% to 3%, and that it is converging on the 2% midpoint.
New Zealand’s inflation rate peaked at 7.3% in the second quarter of 2022, the highest level in over 30 years. By the second quarter of 2024, inflation had cooled to 3.3%, but still remained above the central bank’s medium-term target range. The recent rate cuts aim to further control inflation and stimulate economic growth in a subdued economic environment.
The central bank pointed out that economic activity in New Zealand has been “subdued,” with weak business investment, soft consumer spending, and deteriorating employment conditions. Additionally, low productivity growth is hampering overall economic activity. The RBNZ said it was “appropriate” to reduce interest rates to maintain low and stable inflation while preventing instability in output, employment, and the national currency.
Paul Bloxham, HSBC’s chief economist for Australia and New Zealand, told CNBC’s Street Signs Asia that he expects the RBNZ to implement another 50 basis-point cut in its next meeting scheduled for November. “We think there’s probably more cuts to come, and this is a positive thing for the RBNZ,” Bloxham said, adding that the bank has successfully brought inflation back to manageable levels.
New Zealand is set to release its third-quarter inflation data next week, which could further confirm the central bank’s progress in reining in inflation. Bloxham predicts that inflation will fall within the RBNZ’s target band, paving the way for a series of smaller rate reductions. He forecasts a sequence of 25-basis-point cuts in 2025, with the policy rate potentially dropping to 3.25% by the end of 2025 or 3% by early 2026.
The central bank’s monetary easing measures aim to balance inflation control with fostering economic growth in a challenging global environment.
