In an effort to stimulate its decelerating economy, the Reserve Bank of New Zealand (RBNZ) implemented a substantial reduction in its benchmark interest rates. The central bank decreased the Official Cash Rate (OCR) by 50 basis points, bringing it down to 3.75%.
This action signifies the fourth consecutive rate cut and positions the policy rate at its lowest level since November 2022.
The decision aligns with predictions from economists surveyed by Reuters, and is motivated by easing inflation, which provides the RBNZ with leeway to invigorate the struggling economy. According to its monetary policy statement, the RBNZ indicated that inflation was still near the 1%–3% midpoint of its target range, which prompted the rate reduction.
New Zealand’s most recent headline inflation rate, recorded at 2.2% for the quarter ending in December 2024, reveals a pattern of declining price growth over the previous two years. Government data indicates that the country’s growth has decreased year over year for five consecutive quarters leading up to September 2024.
Following the announcement, the New Zealand dollar experienced a boost, strengthening by 0.4% to reach a trading value of 0.568 against the US dollar.
The central bank anticipates an economic rebound in 2025, stating that lower interest rates will encourage spending, although elevated global economic uncertainty is expected to weigh on business investment decisions.
However, the bank issued a cautionary note, anticipating volatility in New Zealand’s consumer inflation in the short term and attributing this to a reduced exchange rate and elevated petrol prices.
“The net effect of future changes in trade policy on inflation in New Zealand is currently unclear,” the RBNZ noted. It also added that should economic conditions progress as anticipated, further policy rate reductions may occur in 2025.