Reserve Bank of New Zealand Cuts Interest Rates

Investing.com– The Reserve Bank of New Zealand (RBNZ) cut interest rates by 50 basis points on Wednesday as expected, citing continued progress towards stabilizing inflation and the need to shore up local economic growth.

The RBNZ cut its official cash rate to 4.75% from 5.25%, in line with market expectations.

Drivers for Rate Cut

Wednesday’s cut was driven chiefly by increasing confidence among RBNZ policymakers that consumer price index inflation will fall within the bank’s 1% to 3% target range in the September quarter, the central bank said in a statement.

However, the central bank also signaled that future rate changes would be dependent on the path of the economy, and that at 4.75%, the official cash rate was “still restrictive.”

Economic Conditions

The RBNZ noted that the New Zealand economy remained weak, and that the labor market was also set to soften in the coming months.

Wednesday’s cut is the RBNZ’s second cut this year, as it kickstarted an easing cycle in the face of softening inflation and cooling economic growth. The central bank had cut rates by 25 bps in August and signaled more potential cuts.

Despite this, comments on Wednesday suggested that future rate cuts may not be as certain, with the RBNZ now stepping back to gauge the impact of its rate cuts on the economy.

Market Reaction

The New Zealand dollar weakened after the cut, with the NZDUSD pair falling nearly 0.5%.