NZ: RBNZ Announcement

The Reserve Bank of New Zealand's Monetary Policy Committee has cut the official cash rate by 25 basis points from 3.75 percent to 3.50 percent, in line with the consensus forecast. Officials have now lowered policy rates by a cumulative 200 basis points over their last five meetings after an extended period of restrictive policy settings.

The aggressive easing in recent meetings has accompanied data showing a sustained fall in inflation. Headline CPI inflation fell from 4.0 percent in the three months to March to 3.3 percent in the three months to June and 2.2 percent in the three months to both September and December, with core inflation falling from 3.7 percent to 2.8 percent and then 2.7 percent over this period.

In the statement accompanying today's decision, officials noted recent global trade tensions and market volatility, noting that this will likely have adverse effects on domestic economic activity. They stressed, however, that the inflation outlook is less certain, arguing that it will be impacted by several factors, some of which are ambiguous and could offset each other. Officials concluded that uncertainty around the inflation outlook is higher but that the risks remain balanced.

Reflecting this assessment, officials decided that there was scope to lower policy rates again today. Moreover, they also advised that they expect to lower rates further in coming meetings"as the extent and effect of tariff policies become clearer."

Forecasters agree the RBNZ will cut rates by another 25 basis points this time. After a 50 bp rate cut at the February meeting, RBNZ comments appeared to signal 25 basis point rate cuts in April and May.

Meeting at roughly six week intervals, the Reserve Bank of New Zealand meets and decides whether to change or maintain New Zealand's Official Cash Rate. The RBNZ is known for its clarity regarding monetary policy intentions, thus the result is usually foreseen in advance. The decision aligns with the Reserve Bank of New Zealand's monetary policy to spur or slow economic growth or affect the exchange rate.

The RBNZ maintains an inflationary target range of 1 percent to 3 percent and will change rates to keep it within such a range, making rate decisions fairly predictable. Rate changes are significant nonetheless, affecting interest rates in consumer loans, mortgages, and bond rates. Increases or even expectations for rate increases tend to cause the New Zealand Dollar to appreciate, while rate decreases cause the currency to depreciate.

The RBNZ determines interest rate policy at it policy meetings. These meetings occur roughly every six weeks and are one of the most influential events for the markets. Market participants speculate about the possibility of an interest rate change. However, since the Bank is known for its clarity in setting policy, the result is usually built into the markets in advance. The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.

Frequency
Eight times a year.