As widely expected, New Zealand’s Reserve Bank has made its first cut in interest rates since early 2021.
The RBNZ announced a cut of 0.25% in its official cash rate on Wednesday – it had been forecast after the central bank appeared to be moderating its hardline stance on monetary policy over the past two meetings.
The cut leaves the Reserve Bank of Australia with its cash rate resolutely stuck at 4.35% with no desire to cut it in 2024.
The post-meeting statement from the bank pointed to a slowing pace of inflation as the key reason for the cut.
The rate fell to 3.3% in the year to June, according to Statistics NZ – above the central bank’s target range of 1% to 3%.
But the RBNZ said that “New Zealand’s annual consumer price inflation is returning to within the Monetary Policy Committee’s 1 to 3 per cent target band. Surveyed inflation expectations, firms’ pricing behaviour, headline inflation, and a variety of core inflation measures are moving consistent with low and stable inflation.”
But it also pointed to weakening external pressures, “Imported inflation into New Zealand has declined to be more consistent with pre-pandemic levels.”
“Services inflation remains elevated but is also expected to continue to decline, both at home and abroad, in line with increased spare economic capacity. Consumer price inflation in New Zealand is expected to remain near the target midpoint over the foreseeable future.”
As a result, the RBNZ said it “agreed to ease the level of monetary policy restraint by reducing the OCR to 5.25 per cent.”
“The pace of further easing will depend on the Committee’s confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the 2 per cent target.”
The last cut in the OCR came in February 2021 when the pandemic and lockdowns were in force. The OCR had been at 5.5% since May of last year, following a long period of increases, starting back in October 2021 when it was lifted to 0.50% from the pandemic level of 0.25%.
