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New Zealand’s central bank, the Reserve Bank of New Zealand (RBNZ), reduced its cash rate by 50 basis points to 4.75% on Wednesday, aligning with market expectations. This marks the second consecutive rate cut, following a 25-basis-point reduction in August.
Market Reactions
- The kiwi dollar dropped 0.9% to $0.6084, reaching its lowest level since August 19.
- Two-year swap rates fell 7 basis points to 3.605%, indicating market expectations for an additional 45 basis points of easing at the upcoming November meeting.
Inflation Insights
The RBNZ’s minutes indicated that annual inflation is now within its target range of 1% to 3%, converging on the 2% midpoint, with recent data showing 3.3% inflation in the second quarter.
Economic Outlook
Despite the rate cut, the RBNZ warned of a subdued economic outlook, citing:
- Weak house price growth
- Lower net immigration levels
- Potential spillover effects from the Middle East conflict, which could impact global economic activity and energy prices.
Citi economists now anticipate a larger 75 basis points cut in November, reflecting the perception that the current cash rate remains overly restrictive.
Global Context
New Zealand’s easing aligns with global trends as many central banks move away from aggressive tightening. In contrast, Australia’s central bank maintains a more restrictive stance to address inflation concerns.
