By LUCY CRAYMER
WELLINGTON- New Zealand’s central bank cut its benchmark rate by 50 basis points to 3.75 percent on Wednesday and policymakers flagged further reductions in borrowing costs amid moderating inflation as they sought to revive a struggling economy.
The New Zealand dollar slipped while the 90-day bank bill futures rallied as markets priced in a 25-basis point cut in April, and more reductions by year-end.
“The economic outlook remains consistent with inflation remaining in the band over the medium term, giving the Committee confidence to continue lowering the OCR,” the Reserve Bank of New Zealand said in its accompanying policy statement.
The decision was in line with a Reuters poll where 32 of the 33 economists surveyed forecast the RBNZ will cut the cash rate for the fourth straight meeting, and by half a percentage point.
“If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025,” the RBNZ said.
The central bank signaled a lower cash rate trajectory in coming months compared with previous forecasts, but the reductions are expected to be in smaller 25-bps moves. It now projects that rates will fall to 3.45 percent by June, and the year-end rate is expected to be 3.10 percent, down from the November estimate of 3.2 percent.
“The main message from today’s Monetary Policy Statement is the lowering (again) of the Official Cash Rate track. The RBNZ are signaling more cuts, sooner,” said Kiwibank chief economist Jarrod Kerr
The central bank has now cut rates by 175 basis points since August, with a slowdown in inflation giving policymakers leeway to extend their easing efforts in a much needed boost for an economy struggling to emerge from a deep recession.
The RBNZ said it is well placed to maintain price stability over the medium term and respond to future inflationary shocks, but added that global uncertainty over tariff policies pose some risks to the economy.
“The RBNZ’s aggressive 50-basis point cut to 3.75 percent shows its determination to revive the economy, despite inflation risks and global uncertainties like Donald Trump’s re-election as US President,” Saxo Asia Pacific Senior Sales Trader Junvum Kim.
Several of the large banks in New Zealand including Westpac, ASB Bank, Kiwibank and Bank of New Zealand cut mortgage rates following the cash rate announcement.
Bill futures rallied as markets priced in a 93 percent chance of an easing in April and have rates near 3.0 percent by year-end, which is seen as the bottom of the cycle.
The kiwi dollar slipped 0.3 percent to $0.5683 having already lost 0.5 percent on Tuesday.
GLOBAL TARIFF, ECONOMIC UNCERTAINTY
A global front-runner in withdrawing pandemic-era stimulus, the RBNZ lifted rates 525 basis points since October 2021 to curb inflation in the most aggressive tightening since the official cash rate was introduced in 1999.
The punishing borrowing costs, however, took a heavy toll on demand and tipped the economy into recession in the third quarter of last year – the worst downturn outside of the pandemic since 1991.
The weakened state of the economy has added urgency to policymakers efforts to stimulate demand. The government has already abandoned hopes for a return to budget surpluses, seeing deficits for the next five years.
New Zealand’s annual inflation has come off in recent months and is currently at 2.2 percent, but the central bank said a volatile period ahead will probably see it increase to 2.7 percent in the third quarter before moderating again.
New Zealand is one of several countries to ease rates as inflation has moved lower, but its sharp reductions to borrowing costs contrast with a more cautious approach by the US Federal Reserve and its counterpart in Australia.
The Reserve Bank of Australia on Tuesday delivered the first cut in interest rates in more than four years but signaled a cautious approach to any further easing.
