RBNZ Cuts Rate to 3%, Signals More Easing Ahead

The Reserve Bank of New Zealand (RBNZ) lowered its Official Cash Rate (OCR) by 25 basis points to 3.0%, a three-year low, extending the cumulative cuts to 250 bps since August 2024. The decision was finely balanced, with 4 of 6 committee members voting for a quarter-point move, while 2 preferred a larger 50 bps cut.

Policy Stance & Economic Backdrop

The cut reflects mounting signs of economic weakness:

• Growth stalled in Q2 amid falling household consumption and subdued business investment.
• Unemployment rose to 5.2%, while declining house prices further dampened sentiment.
• External risks, particularly U.S. tariff uncertainties, have weighed on business confidence and trade activity.

The RBNZ emphasized it remains ready to provide further support if conditions deteriorate. Importantly, it lowered its projected OCR trough to 2.55% (previously 2.85%), signaling more room to ease.

RBNZ Policy Outlook

The committee’s split vote underscores a growing bias toward aggressive easing. With two members already favoring a 50 bps cut, markets see a strong chance the RBNZ will accelerate easing if data continues to weaken.

Swap markets now price in additional cuts in October and November, potentially bringing the OCR down to 2.5% by year-end.

Market Reaction & Sentiment on NZD

The New Zealand Dollar (NZD) tumbled on Wednesday—losing around 1.2% against the dollar, hitting its lowest level in four months around 0.5820, as market digested the dovish shift.

Swap rates also fell to their lowest since early 2022 reaching 2.85%, reflecting expectations for further monetary easing.

NZD/USD, Day Chart | Source: Ultima Market MT5

Following the RBNZ’s dovish move, the NZD/USD extended its slide and marked a four-month low, breaking decisively below the 0.5855 support neckline.

This breakdown suggests a potential bearish turn in the near term, opening the door for further downside momentum if selling pressure persists.

What’s Next?

• Watch upcoming economic data (employment, inflation, consumption) for clarity on whether RBNZ will follow through with additional cuts.
• The NZD may face further downside if global uncertainties persist or domestic data disappoints.
• Swap and bond markets will continue adjusting as rate cut expectations evolve, influenced by both global pressures and domestic conditions.

Disclaimer

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