The Reserve Bank of New Zealand (RBNZ) announced today that it has lowered the Official Cash Rate (OCR) to 4.75%, a reduction of 50 basis points from the previous rate of 5.25%.
The Monetary Policy Committee believes that annual consumer price inflation is currently within its target range of 1% to 3% and is moving closer to the 2% midpoint.
The Committee agreed that New Zealand’s economic growth is weak, primarily due to low productivity gains, but more significantly affected by weak consumer spending and limited business investment. High-frequency indicators suggest that this subdued growth trend is likely to persist in the near future. However, certain exporting companies, especially in the dairy sector, have benefitted from increased export prices.
Labour market conditions are anticipated to soften further as both filled positions and advertised vacancy rates continue to decrease. Additionally, overall weak growth in house prices, reduced net immigration levels, and ongoing fiscal tightening due to spending constraints are expected to limit the growth of aggregate demand.
The Committee deliberated on the advantages of implementing a 25-basis point cut compared to a 50-basis point cut in the OCR. They agreed that a 50-basis point reduction is appropriate for achieving and maintaining low, stable inflation while also striving to avoid unnecessary volatility in output, employment, interest rates, and the exchange rate.
Members concurred that an OCR of 4.75% remains restrictive, positioning monetary policy effectively to address any immediate surprises. The Committee affirmed that any future adjustments to the OCR will be based on their ongoing evaluation of the economy.