The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) voted to cut the official cash rate (OCR) by 50 basis points to 2.5% at its meeting this morning, Wednesday, October 8. Expectations were for a cut of only 25 basis points, marking the second consecutive meeting, after resuming the series of cuts that had been paused at the July meeting following six consecutive rate cuts.
The RBNZ statement indicated that annual consumer price inflation remains within the MPC’s target range of 1% to 3%. While inflation is currently approaching the top of its range, it is expected to reach 3% in the third quarter of this year. However, annual CPI inflation is expected to return to the midpoint of the target in the first half of next year. The committee discussed the larger-than-expected contraction in GDP in the second quarter. This trend is expected to reverse over the remainder of the year and is not expected to have a significant impact on monetary policy, as the rate cut is expected to support a growth recovery by supporting new borrowing and investment and lower mortgage rates.
The bank left the door open to further interest rate cuts, subject to inflation remaining sustainable near the 2% midpoint over the medium term.
The New Zealand dollar fell against the US dollar to a five-month low following the surprise move by the bank, which is double the expected 25 basis points cut.