Financial News: New Zealand Cuts Key Rate For First Time

New Zealand Cuts Key Rate For First Time In 4 Years

08/14/2024 - 03:56:00 (RTTNews)

(RTTNews) - New Zealand's central bank lowered its key interest rate for the first time in four years as domestic activity showed a more pronounced slowdown amid continuous decline in inflation.

The Monetary Policy Committee of the Reserve Bank of New Zealand, led by Governor Adrian Orr, unexpectedly decided to cut the Official Cash Rate by 25 basis points to 5.25 percent. This was the first reduction since March 2020. Markets were expecting the central bank to maintain status quo.

With inflation set to return to the target band in the September quarter and growing excess capacity expected to support a continued decline in domestic inflation, the committee concluded that there was scope to temper the extent of monetary policy restraint.

In the June quarter, inflation weakened to 3.3 percent, which was the sixth consecutive slowdown. The central bank aims to bring inflation to the target of 1-3 percent.

Members said the weakening in domestic economic activity became more pronounced and broad-based. Also, they noted that the downside risks to output and employment became more apparent.

"The pace of further easing will depend on the Committee's confidence that pricing behaviour remain consistent with a low inflation environment, and that inflation expectations are anchored around the 2 percent target," the bank said in the statement.

Signaling further rate cuts this year, the central bank lowered its interest rate path. The OCR is projected at 4.92 percent by December 2024 compared to 5.65 percent forecast in May.

Although the bank seemed to strike a cautious tone about further policy easing, it is likely to cut rates more aggressively than many anticipate, Capital Economics' economist Abhijit Surya said.

The economist expects the OCR to be slashed to 3.5 percent by end-2025.

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