MNI BRIEF: RBNZ Cuts OCR 25BP To 5.25%

MNI (MELBOURNE) - The Reserve Bank of New Zealand monetary policy committee cut the official cash rate 25 basis points to 5.25% Wednesday and revised its inflation expectations lower, noting the balance of risks had shifted since May. 

The RBNZ now expects headline CPI to fall to 2.3% in Q3, 70bp less than its May forecasts, according to the August Monetary Policy Statement. The Reserve also expects the OCR to fall about 100bp by mid-2025, a departure from May’s forecasts, which expected a flat rate following a potential hike. 

The MPC was expected to discuss a cut this week, however, a move lower was uncertain. (See MNI RBNZ WATCH: Hold Likely, But MPC To Consider Cuts) The RBNZ has voiced a higher-for-longer narrative since it last hiked the OCR in May 2023. (See MNI INTERVIEW: RBNZ Credible, Cuts Still Distant - Conway)

“The Committee noted that the weakening in domestic economic activity observed in the July Monetary Policy Review has become more pronounced and broad-based,” the MPC noted. “Headline inflation has declined, and business inflation expectations have returned to around 2% at medium- and longer-term horizons. Committee members agreed that monetary policy restraint can now begin to ease.”