A security guard stands at the main entrance of the Reserve Bank of New Zealand in downtown Wellington, New Zealand on July 3, 2017.
David Gray | Reuters
The Reserve Bank of New Zealand cut its benchmark interest rate by 25 basis points to 5.25% on Wednesday.
The move surprised economists polled by Reuters, who had expected the central bank to keep interest rates unchanged at 5.5 percent.
This will be the first time the central bank has cut interest rates since March 2020.
In the announcement, The RBNZ noted that consumer price inflation is moving back towards its target range of 1% to 3%. “Surveyed inflation expectations, business pricing behaviour, headline inflation and a range of core inflation measures are moving in line with low and stable inflation,” it said.
New Zealand’s services inflation remains high, but the RBNZ expects it to fall and expects consumer price inflation to remain around 2% for the “near future”.
The central bank later said the pace of further easing would depend on its level of confidence in the low inflation environment and whether inflation expectations remain anchored around its 2% target.
The RBNZ also cut its base rate forecast for December to 4.92%, suggesting the central bank could cut rates again before the end of the year.
The trajectory of expected rate cuts has also become significantly steeper. At its May monetary policy meeting, the central bank projected interest rates at 5.65% and 5.14%, respectively, for December 2024 and December 2025. Now, the central bank has lowered those figures to 4.92% for December 2024 and 3.85% by December 2025.
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