WELLINGTON, Nov 27 - New Zealand's central bank has reduced the cash rate by 50 basis points to 4.25%, responding to annual inflation remaining close to the 2% target midpoint and subdued economic activity.
This decision aligns with the expectations of economists, as 27 out of 30 surveyed predicted the Reserve Bank of New Zealand (RBNZ) would implement a similar cut. This follows another reduction made in October.
The RBNZ indicated that if economic conditions continue as anticipated, further cuts to the official cash rate (OCR) could occur early next year. The Committee emphasized that the 50 basis point cut aligns with their mandate to maintain low and stable inflation while minimizing instability in output, employment, interest rates, and the exchange rate.
Forecasts from the RBNZ suggest the cash rate may drop to 3.8% by the second quarter of 2025 and further to 3.6% by the fourth quarter of 2025, indicating more reductions than previously expected.
The statement noted that domestic price and wage behavior is stabilizing around the target midpoint for inflation, with a decrease in import prices also contributing to lower overall inflation. Economic growth is projected to recover in 2025, driven by lower interest rates fostering investment and spending, although employment growth is anticipated to remain weak until mid-2025.