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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI (SYDNEY) - The Reserve Bank of New Zealand's monetary policy committee unanimously agreed to lower the official cash rate 50 basis points to 4.75% on Wednesday, pointing to a build up of excess capacity and subdued activity, but said further changes to rates would depend on its evolving assessment of the economy.
In a statement following the largely expected decision, the committee noted inflation was likely already within the 2-3% target band and would continue to move towards the 2% midpoint. (See MNI RBNZ WATCH: MPC To Weigh Easing Pace, 50bp Cut Eyed) The MPC had also considered a 25bp move.
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.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.