The Reserve Bank of New Zealand (RBNZ) made headlines with an unexpected rate cut, reducing its official cash rate by 25 basis points. This unexpected rate cut brings the rate down to 5.25%, surprising many economists who anticipated no change. The RBNZ's decision marks the first rate cut since March 2020, signaling a shift in monetary policy.
In its statement, the RBNZ highlighted that consumer price inflation is trending back toward the target range of 1% to 3%. The bank emphasized that surveyed inflation expectations, firms’ pricing behavior, and various core inflation measures align with low and stable inflation. Despite elevated service inflation, the RBNZ predicts a decline, with consumer price inflation expected to remain near 2% in the foreseeable future.
The RBNZ also adjusted its benchmark rate forecast, now predicting a rate of 4.92% by December. This revision suggests the possibility of further rate cuts before the end of the year. The central bank's future actions will depend on how inflation expectations evolve and whether they remain anchored around the 2% target.
The trajectory of future rate cuts has steepened significantly. Previously, the RBNZ forecasted rates of 5.65% and 5.14% for December 2024 and 2025, respectively. These figures have now been revised to 4.92% for December 2024 and 3.85% by December 2025. This adjustment indicates a more aggressive approach to easing monetary policy, reflecting the central bank's cautious outlook on the economy.
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The RBNZ’s unexpected rate cut to 5.25% has surprised the market. Learn about the implications on the economy and future forecasts.
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