RBNZ Monetary Policy Announcement: Anticipated 50bp Rate Cut
The Reserve Bank of New Zealand (RBNZ) is set to announce its monetary policy overnight, with both markets and consensus leaning towards a 50 basis point rate cut. ING’s FX analyst, Francesco Pesole, agrees with this prediction.
RBNZ Accelerating Rate Cuts Towards Neutrality
The RBNZ operates with limited data on inflation and the job market, with official reports released quarterly. Following the surprise 25 basis point cut in August, the only recent hard data available is the second-quarter GDP report, which showed negative growth. This could potentially push the RBNZ to accelerate rate cuts towards neutrality, especially after the 50 basis point cut by the Fed in September.
- A half-point cut prior to the third-quarter inflation figures indicates confidence in the disinflation process.
- There are high risks of headline CPI falling below 2.0% in the third quarter, potentially leading to uncomfortably high real rates if the RBNZ does not continue cutting rates.
Market expectations currently price in a 45 basis point cut for this meeting, with a total of 91 basis points by the end of the year. A 50 basis point cut could further weaken the underperforming New Zealand Dollar, potentially pushing it closer to 0.61 against the US Dollar leading up to the US election.
Analysis of RBNZ Rate Cut and Implications
The RBNZ’s decision to cut rates by 50 basis points reflects a proactive approach to stimulating the economy and addressing potential deflationary pressures. By moving towards neutral rates at a faster pace, the central bank aims to support growth and maintain price stability.
Key Points to Consider:
- Accelerated rate cuts indicate the RBNZ’s commitment to addressing economic challenges promptly.
- Concerns about low inflation and negative growth necessitate decisive monetary policy actions.
- The impact on the New Zealand Dollar highlights the currency’s vulnerability to interest rate changes and global economic events.
- Market reactions to the rate cut will provide insights into investor sentiment and expectations for future monetary policy decisions.
Overall, the RBNZ’s decision to implement a significant rate cut underscores the importance of proactive monetary policy measures in supporting economic recovery and maintaining price stability.