New Zealand Central Bank Cuts Rate; Signals Steeper Easing

(RTTNews) - The Reserve Bank of New Zealand cut its interest rate further by 50 basis points on Thursday and signaled more reductions this year to support economic growth.

The Monetary Policy Committee of the Reserve Bank of New Zealand, led by Governor Adrian Orr, decided to lower the Official Cash Rate to 3.75 percent from 4.25 percent.

The bank has lowered the rate by 175 basis points since last August.

"If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025," the bank said.

Orr said the bank is looking at lowering the OCR a little bit quicker than what was projected in November.

The new projections of the RBNZ showed the OCR at around 3.4 percent by June quarter and 3.1 percent in the December quarter of 2025.

Policymakers observed that inflation remained near the mid-point of the 1-3 percent target band.

In the near-term, inflation is likely to be volatile due to a lower exchange rate and higher petrol prices. However, the net effect of future changes in trade policy on inflation is currently unclear, policymakers noted.

Economic activity remained subdued. The bank expects growth to recover this year as lower interest rates support spending. Moreover, higher prices for some commodities and lower exchange rate lift export revenues, the committee observed.

Further, the committee said the labor market is expected to improve with a lag as economic growth picks up. The unemployment rate reached near its peak and is set to fall later this year, the committee added.

The bank expressed concerns about the uncertainty emanating from global trade tariffs.

Capital Economics economist Abhijit Surya said the bank will encounter further downside surprises in the incoming data. There remains a strong case for it to cut rates further than it is currently signaling, he added.