The Reserve Bank of New Zealand's Monetary Policy Committee has reduced the official cash rate by 50 basis points to 2.50 percent, a bigger cut than the consensus forecast for a reduction of 25 basis points. Officials have lowered policy rates by a cumulative 300 basis points over their previous nine meetings after an extended period of restrictive policy settings.

In the statement accompanying today's decision, officials noted that inflation is currently around the top of their target range of 1 percent to 3 percent but expressed confidence it will return to around the mid-point of that range early next year. Recent activity data, however, have shown conditions to be weaker than they had anticipated and indicate that"there remains significant capacity in the new Zealand economy".

Reflecting this assessment, officials decided that that it was appropriate to cut policy rates again today. Although they also considered a 25 basis point reduction, they concluded a bigger reduction would mitigate downside risks to the growth outlook. They also advised that if medium-term inflation pressures ease as they anticipate, they remain 'open" to cut the cash rate further in coming meetings.

The Econoday consensus anticipates a 25 bp rate cut to 2.75 percent this week, as the economy remains weak and RBNZ guidance pointed to more rate reduction this year. Markets are pricing a good chance of a 50 bp cut on the view that there is no good reason for the RBNZ not to act aggressively headed into the year end holiday season.

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.