The Reserve Bank of New Zealand (RBNZ) shocked financial markets in the Asian session this morning (Wednesday) when it cut the official cash rate (OCR) by 50 basis points to 2.50%, at its latest policy meeting.
The cut was larger than analysts' expectations of a 25 basis point cut.
In a follow-up statement, the RBNZ explained that the move was necessary to support the country's slowing economy, while ensuring that inflation remained stable within its target range of 1% to 3%.
The central bank also signaled the possibility of additional rate cuts if growth remains weak in the next quarter.
The surprise decision caused the New Zealand dollar to fall almost 1% against the US dollar, to a new 6-month low.
Since August 2024, the RBNZ has implemented a cumulative 300 basis points of interest rate cuts, signaling that monetary policy is now looser to stimulate domestic economic activity.
The central bank has stressed that its primary focus is to stabilise inflation around its mid-2% target while supporting the labour market and consumer confidence.
Signals of continued policy easing in the near term will provide relief to borrowers, but also raise concerns about the country's economic reliance on low-interest rate stimulus.
The RBNZ is expected to reassess the impact of this move at its next policy meeting in December, to determine whether the economy has shown signs of a solid recovery.
