The Reserve Bank of New Zealand (RBNZ) has cut its Official Cash Rate (OCR) by 50 basis points to 4.75%, marking a significant shift in its monetary policy stance. This move, while widely anticipated by markets (as discussed in our Event Guide), and it underscores the central bank’s growing concerns about economic growth and its confidence in inflation’s return to target.
Key Points:
- RBNZ cuts OCR by 50 basis points to 4.75%
- Inflation is converging on the 2% midpoint of the target range
- GDP contracted in the second quarter, prompting aggressive easing
- The RBNZ signaled the potential for further rate cuts
Link to Reserve Bank of New Zealand Media release
New Zealand dollar vs. Major Currencies: 5-min
Overlay of NZD vs. Major Currencies Chart by TradingView
In the RBNZ press release, the Monetary Policy Committee cited subdued economic activity thanks to its restrictive monetary policy. They also noted that global economic activity looks to be declining, most notably in the U.S. and China, while military action in the Middle East maybe a headwind down the road.
Finally, the most notable comment that will likely influence future rate outlook is how they noted “dampened inflation expectations,” with wage and price growth now more consistent with a low inflation environment, and expectations of easing employment conditions ahead.
This was obviously taken as dovish commentary, signaled by the broad drop in the Kiwi dollar off the rip, as traders likely begin pricing in higher odds of further rate cuts ahead. The sellers came in and double down with every bounce attempt, leading the New Zealand dollar to close the Wednesday session pretty much at session lows.