RBNZ set for another 50 bps interest rate cut amid easing inflation and slowing economic activity

The Reserve Bank of New Zealand is set to lower its key interest rate by 50 bps to 4.25% on Wednesday.

The RBNZ is expected to front-load due to the economic recession and as inflation falls back into the target band.

The New Zealand Dollar could see a big reaction to the RBNZ’s updated forecasts and Governor Orr’s press conference.

The Reserve Bank of New Zealand (RBNZ) will announce its interest rate decision on Wednesday at 01:00 GMT. The central bank is widely expected to cut the Official Cash Rate (OCR) by another 50 basis points (bps) from 4.75% to 4.25%.

A Reuters poll of 30 economists found 27 favoring a 50 bps rate reduction at the November policy meeting. The RBNZ cut the OCR by 25 bps during its August meeting and implemented an additional 50 bps reduction in October.

What to expect from the RBNZ interest rate decision?       

Economists expect the RBNZ to front-load rate cuts due to the gloomy economic outlook and as inflation falls back into the central bank’s target range between 1% and 3%.

New Zealand’s economy skirted another recession after Gross Domestic Product (GDP) declined 0.2% in the second quarter (Q2) from the previous quarter’s revised 0.1% growth. Economists expected a 0.4% contraction in the reported period, while the RBNZ projected a 0.5% drop.

Meanwhile, NZ Stats showed on October 16 that New Zealand’s annual Consumer Price Index (CPI) rose 2.2% in Q3, aligning with market forecasts and marking a sharp slowdown from the 3.3% growth in Q2.