The Reserve Bank of New Zealand's Monetary Policy Committee has cut the official cash rate by 25 basis points from 5.50 percent to 5.50 percent. This follows eight consecutive meetings at which they left the policy rate on hold and was in contrast to the consensus forecast for no change in the rate today. This is the first reduction in this rate since March 2020.

This easing policy follows data published last month which showed headline CPI inflation fell to 3.3 percent in the three months to June from 4.0 percent in the three months to March, with core inflation falling from 3.7 percent to 2.8 percent. In the quarterly Monetary Policy Statement also published today, officials advised that this now makes them more confident that inflation will fall back to within their target range of one percent to three percent this quarter and remain within that range over the forecast horizon.

Officials also advised that they are now more concerned about the near-term growth outlook. They note that recent indicators suggest"the economy is contracting faster than anticipated" and that"the downside risks to output and employment that were highlighted in July have become more apparent".

Reflecting this assessment, officials concluded that there is now"scope to temper the extent of monetary policy restraint" while cautioning that"monetary policy will need to remain restrictive for some time to ensure that domestic inflationary pressures continue to dissipate". This suggests that officials will consider further rate cuts in upcoming meetings provided they are confident that their inflation objectives will be met.

Though inflation has remained high, the Reserve Bank of New Zealand has been keeping policy steady. Consensus for August's meeting is once again no change for the RBNZ's policy rate at 5.50 percent.

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.