New Zealand signals additional easing by reducing the cash rate by 50 basis points

New Zealand's central bank reduced the official cash rate (OCR) by 50 basis points to 4.25% on Wednesday, citing annual inflation hovering near the 2% midpoint of its target range and subdued economic activity.

The decision met expectations, with 27 out of 30 economists in a Reuters poll predicting the Reserve Bank of New Zealand (RBNZ) would implement a 50-basis-point cut. This move follows a similar reduction made in October.

"If economic conditions progress as anticipated, the Committee expects further OCR reductions early next year," the statement noted.

Minutes from the meeting highlighted that the 50-basis-point cut aligns with the bank's mandate to maintain low and stable inflation while minimizing unnecessary volatility in output, employment, interest rates, and the exchange rate.

The RBNZ now projects the cash rate will decline to 3.8% by the second quarter of 2025 and to 3.6% by the fourth quarter of the same year, signaling more cuts than previously forecasted in August.

The statement also indicated that domestic price and wage-setting behavior is aligning with stable inflation near the target midpoint. Additionally, a drop in import prices has contributed to lower headline inflation.

Economic growth is anticipated to recover in 2025, driven by lower interest rates that are expected to boost investment and spending. However, employment growth is likely to remain weak until mid-2025, and financial pressures for some households may take longer to ease.

Paraphrasing text from "Reuters" all rights reserved by the original author.