The reduction follows the Reserve’s surprise about-face in August, when it launched its easing cycle with a 25bp cut and slashed its OCR outlook.
RBNZ overnight index swaps softened between 5-6bp following today's call, with markets now expecting a 3.16% OCR by August. A further 50bp cut has been priced in for the Nov 27 meeting.
SLOWING ECONOMY
The RBNZ’s decision to cut 50bp came ahead of key CPI and labour market data due over the next few weeks. The move was also stronger than that suggested by the RBNZ's OCR track within the August Monetary Policy Statement, which implied a 4.9% rate by December. The Reserve will update its forecasts when it meets in November.
Last week’s Quarterly Survey of Business Opinion, which showed a more rapidly softening picture of the economy, played a significant role driving the Bank’s move, with the MPC today noting "high-frequency indicators point to continued subdued growth in the near term."
The survey's results had suggested Q3 CPI could print lower than forecast, alongside a drop in trading activity and a rise in staff reductions over hiring. (See chart)
EASING PACE
In its statement, the MPC said the 50bp cut would help avoid unnecessary economic instability. “The Committee confirmed that future changes to the OCR would depend on its evolving assessment of the economy,” the MPC added, stating a 50bp cut would further ease the level of monetary policy restrictiveness, consistent with the Committee’s mandate of maintaining low and stable inflation, "while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate."
Former staffers have told MNI that the RBNZ will need to move swiftly to stay ahead of the curve as the OCR remains well above neutral estimates. (See MNI: RBNZ To Consider Strong Easing Tempo - Former Econs)
The MPC will not meet again, following November’s meeting, until Feb 19.