Central Bank cuts rates in August

Latest bank decision: At its meeting on 20 August, the Central Bank decided to cut the Official Cash Rate (OCR) by 25 basis points to 3.00%, taking total rate cuts to 250 basis points since August 2024.

Stalling economy and mild inflation expectations drive cut: The decision was influenced by the tepid domestic economy, with the Bank highlighting falling employment, declining house prices and soft spending by consumers and firms. Moreover, inflation is expected by the Bank to fall back towards the center of the 1.0–3.0% target range by the middle of next year.

Further rate cuts on the cards: The Bank suggested it could cut rates further going forward if inflation continues to moderate as currently anticipated by our panelists.

Panelist insight: Goldman Sachs analysts said: “The Governor sounded concern about NZ's 'stalling' economic recovery against the backdrop of significant spare capacity – both of which have reduced upside risk to already 'on-target' inflation. We now forecast a faster easing cycle with 25bp cuts in Oct and Nov (prior: Nov, Feb: to 2.50%) to an unchanged terminal rate of 2.50%. While potential ongoing RBNZ leadership changes could cloud its reaction function, we continue to view the balance of risks to our revised forecast as skewed to the downside.” ANZ Bank analysts concurred: “The details were much more dovish than expected. Not only did the accompanying OCR track bottom out at 2.55% versus 2.85% in May; two Committee members voted for a 50bp cut. That’s quite the pivot from May, where one Committee member voted against cutting at all. The RBNZ has come around to our big-picture view more quickly than we anticipated. Accordingly, we are bringing forward the two further cuts in our forecasts to October and November, whereas we were previously forecasting them to come in November and February.”

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