Financial News: New Zealand Cuts Rate By 50 Bps; Signals

New Zealand Cuts Rate By 50 Bps; Signals More Easing

(RTTNews) - The Reserve Bank of New Zealand reduced its benchmark rate at a steeper-than-expected pace on Wednesday and signaled further reductions.

The Monetary Policy Committee, chaired by Christian Hawkesby, decided to cut the overnight cash rate by 50 basis points to 2.50 percent, the lowest since July 2022.

The reduction was steeper than the quarter-point cut anticipated by economists. The rate has been lowered by 300 basis points since August 2024.

"The Committee remains open to further reductions in the OCR as required for inflation to settle sustainably near the 2 percent target mid-point in the medium term," the bank said in a statement.

Policymakers discussed the options of reducing the rate by 25 basis points or by 50 basis points at the meeting.

However, members concluded that a larger reduction in interest rate could mitigate the risk of excess precaution by households and businesses, while providing a clear signal that the central bank supports consumption and investment. Policymakers observed that lower interest rates are supporting a recovery in consumer spending.

The committee observed considerably larger-than-expected contraction in GDP in the second quarter. However, the MPC assessed that an unusually large seasonal balancing item contributed to the weakness but it will be reversed during the remainder of the year.

With spare capacity in the economy, the committee expects headline inflation to return towards the 2 percent target mid-point over the first half of 2026.

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