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 key interest rate by 25 basis points to 5.25 percent on Wednesday.
The move surprised economists surveyed by Reuters, who had expected the central bank to leave interest rates unchanged at 5.5 percent.
This is the first time since March 2020 that the central bank has cut interest rates.
In its press release, the RBNZ noted that consumer price inflation is returning to its target range of 1 to 3 percent. It said “surveyed inflation expectations, business pricing behavior, headline inflation and a range of core inflation measures are moving in line with low and stable inflation.”
While services inflation in the country remains high, the RBNZ expects it to decline. Consumer price inflation in New Zealand is expected to remain at around 2% “for the foreseeable future”.
The central bank then said that the pace of further easing would depend on how confident it was about a low inflation environment and that inflation expectations were anchored at around two percent.
The RBNZ also lowered its policy rate forecast to 4.92% by December, meaning the central bank could cut rates again before the end of the year.
The trend in expected interest rate cuts has also accelerated significantly. At its monetary policy meeting in May, the bank forecast interest rates of 5.65% and 5.14% in December 2024 and 2025, respectively. It has now lowered these figures to 4.92% for December 2024 and 3.85% for December 2025.
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