By Rebecca Howard
Aug. 7 (BusinessDesk) - The Reserve Bank slashed the official cash rate by 50 basis points to 1 percent due to a softer outlook for employment and inflation, slower economic growth and weaker global conditions. The New Zealand dollar tumbled.
"Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level," the committee - which includes three external members - said in a statement.
New Zealand's central bank now has a dual mandate to support maximum sustainable employment and keep annual inflation between 1 percent and 3 percent over the medium term, with a focus on the mid-point of 2 percent. Annual inflation is currently running at 1.7 percent.
Sixteen of 17 economists polled by Bloomberg had expected a 25 basis point move while one had expected the bank to stay on hold.
According to a summary record of meeting, the members debated the relative benefits of a 25 basis point cut and communicating an easing bias, versus reducing the cash rate by 50 basis points now.
“The committee reached a consensus to cut the OCR by 50 basis points to 1.0 percent. They agreed that the larger initial monetary stimulus would best ensure the committee continues to meet its inflation and employment objectives,” it said.
Changes to the central bank’s forecasts in the latest monetary policy statement also show a chance for another cut as the forecast interest rate track eases to 0.9 percent in late 2020. The prior monetary statement in May showed the OCR tracking going from 1.7 percent to 1.4 percent in March 2020 before lifting in late 2021.
The New Zealand dollar fell to 64.57 US cents from 65.44 cents just prior to the statement.