As expected by the market and most analysts, the Reserve Bank of New Zealand cut its key interest rate again this morning by 25 basis points to 2.25%. Since last summer, interest rate cuts have totaled 325 basis points, making the RBNZ the G10 central bank that has cut interest rates the most this cycle, notes Volkmar Bauer, foreign exchange market analyst at Commerzbank.
The press release signals a neutral stance, and the market cheers
“However, the press release sounds more like a text that could also justify not changing the key interest rate. Risks are emerging in inflation and the first signs of economic recovery are being identified. The labor market has already improved slightly and financial conditions are easing. After a weak second quarter, the economy returned to growth in the third quarter.”
“As a result, the New Zealand dollar reacted to this morning’s key rate cut with slight gains. The market focused more on the change in the last sentence of the press release. In October, it was still stating that the Committee was open to further key rate cuts. This has now been rephrased to a more neutral sentence stating that the next move will depend on the development of inflation and the economy.”
“For the market, this signals the end of New Zealand’s interest rate cycle, which is why the market is pricing in another interest rate move next year this morning, which yesterday was still seen as a 50% chance. This also explains the Kiwi reaction. However, looking ahead, I expect inflation to be somewhat firmer and growth to be somewhat weaker than the Reserve Bank of New Zealand is currently forecasting. However, it will find it difficult to raise interest rates again soon, which is why the economy will continue to be weak and interest rates low. Real. to weigh in on the Kiwis next year.”
