New Zealand central bank cuts interest rates by 50bp

New Zealand's central bank has cut interest rates by 50 basis points in an effort to steady inflation and gave indications that more easing could follow, but stopped short of providing official guidance.

The Monetary Policy Committee of the Reserve Bank of New Zealand slashed the official cash rate (OCR) from 5.25% to 4.75%, as expected by analysts.

The move follows a 25 basis-point cut in August from 5.5% – its highest level since 2008 after rates surged from 0.25% over 2021 and 2022 to tame inflation.

"Economic activity in New Zealand is subdued, in part due to restrictive monetary policy. Business investment and consumer spending have been weak, and employment conditions continue to soften. Low productivity growth is also constraining activity," the MPC said in a statement on Wednesday.

The RBNZ said that while exporters have benefited from improved pricing, global economic growth remains "below trend", citing slowdowns in the US and China, along with geopolitical headwinds.

The central bank said New Zealand's economy was now in a position of "excess capacity" and agreed it was appropriate to reduce the OCR by 50bp "to achieve and maintain low and stable inflation". The cut was also made to avoid "unnecessary instability in output, employment, interest rates, and the exchange rate".

Looking ahead, the RBNZ said that a 4.75% OCR was still restrictive and "leaves monetary policy well-placed to deal with any near-term surprises". It added that future changes to rates "would depend on its evolving assessment of the economy".