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NZ central bank cuts rates, signals more to come

By Rebecca Howard

May 8 (BusinessDesk) - The Reserve Bank cut the official cash rate by 25 basis points to 1.5 percent and signaled more cuts to come. The New Zealand dollar fell.

"The Monetary Policy Committee decided a lower OCR is necessary to support the outlook for employment and inflation consistent with its policy remit," the newly minted committee - which includes three external members - said in the statement.

Changes to the central bank’s forecasts in the latest monetary policy statement now show a chance for another cut by March. The OCR track goes from 1.8 percent to 1.4 percent in March 2020. The bank's prior forecast in February had indicated the first move wasn't anticipated until the first half of 2021, and that that move would have been up.

In March, however, governor Adrian Orr surprised markets when he said that, given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of the next official cash rate move was down.

Markets had been unsure of whether or not the central bank would cut rates today as the global economy has been more positive, with both the US Federal Reserve and the Reserve Bank of Australia holding benchmark rates this week. On the flip side, headline inflation remains below the 2 percent mid-point of the central bank's target range and economic growth has been tepid.

Market pricing had pointed to a 50 percent chance of a 25 basis-point cut to 1.5 percent today. The median estimate in a Bloomberg poll of 17 economists was for a 25 basis-point rate cut to 1.5 percent, although many said they were on the fence.

The New Zealand dollar was trading at 65.56 US cents from 66.00 cents ahead of the statement. It dipped as low as 65.29 US cents.


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