The Reserve Bank of New Zealand's Monetary Policy Committee has cut the official cash rate by 50 basis points from 4.25 percent to 3.75 percent, in line with the consensus forecast. Officials have now lowered policy rates by a cumulative 175 basis points over their last four meetings after an extended period of restrictive policy settings.

This aggressive easing in recent meetings has accompanied data showing a sustained fall in inflation. Headline CPI inflation fell from 4.0 percent in the three months to March to 3.3 percent in the three months to June and 2.2 percent in the three months to both September and December, with core inflation falling from 3.7 percent to 2.8 percent and then 2.7 percent over this period.

In the statement accompanying today's decision, officials expressed confidence that inflation will remain within this range over the medium-term, despite their expectation that exchange rates and fuel prices may cause some volatility. They also reiterated their confidence that economic growth will recover this year in response to the recent reductions in policy rates.

Reflecting this assessment, officials concluded that there is now scope to lower policy rates again today. Moreover, they also advise that they expect to loosen policy further if conditions continue to evolve as projected.

With consumer price inflation down and economic activity subdued, the consensus sees the RBNZ making another 50 basis point rate cut in the official cash rate to 3.75 percent after a 50 bp move to 4.25 percent in November. A rate cut would be consistent with the bank's messaging in November when it said it expected more rate cuts early in the year if conditions continue to evolve as projected, which they have.

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.