New Zealand’s Reserve Bank has cut its Official Cash Rate (OCR) by 50 basis points to 4.75 per cent, following a 0.25 per cent rate cut in late August.
The Monetary Policy Committee confirmed that annual consumer price inflation is within its 1 to 3 per cent inflation target range and converging on the 2 per cent midpoint.
It added that economic activity in New Zealand is subdued, in part due to restrictive monetary policy.
“Business investment and consumer spending have been weak, and employment conditions continue to soften. Low productivity growth is also constraining activity,” the committee reported.
“Some exporters have benefited from improved export prices. However, global economic growth remains below trend. The outlook for the United States and China is for growth to slow, while geopolitical tensions remain a significant headwind for world economic activity.
“The New Zealand economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy. Lower import prices have assisted the disinflation.
“The committee agreed that it is appropriate to cut the OCR by 50 basis points to achieve and maintain low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate.”
Peak body Retail NZ welcomed the news, calling it an early Christmas present for the sector.
“We are delighted at the Reserve Bank’s decision to cut the OCR by 50 basis points to 4.75 per cent,” Retail NZ CEO Carolyn Young said.
“Coming at the beginning of Q4, this will be welcome news for retailers as they prepare to enter the period that is traditionally the busiest time of year for retail sales. Strong pre-Christmas sales are critical to retailers meeting their annual sales targets.”
Retail NZ added it is hopeful that the rate cut will turn around consumer confidence, which has been at prolonged low levels over the last couple of years.
NZ’s rate cut this month follows the Reserve Bank of Australia’s decision to hold the rate steady again at 4.35 per cent in September, which has remained at that level since December 2023.
Various sources predict that Australia’s cash rate won’t start to fall until 2025.
The RBA’s next meeting regarding Australia’s cash rate will be in November.