Source: Sharecast
The Reserve Bank of New Zealand cut the cost of borrowing by an outsized 50 basis points, taking the official cash rate to 2.5%, the lowest level since July 2022. Most analysts had pencilled in a smaller 25bps cut.
The bank also flagged it remained "open to further reductions in the OCR as required for inflation to settle sustainably near the 2% target mid-point in the medium term".
The New Zealand dollar fell sharply on the decision.
GDP contracted by more than expected in the second quarter, by 1.1%. At the time, analysts warned the country was facing a potential double dip recession.
Headline inflation, meanwhile, currently stands at 2.7%, near the very top of the RBNZ’s target band of 1% to 3%.
However, the bank flagged "moderating" domestic inflationary pressures on Wednesday, which it said gave it "more confidence that inflationary pressure are contained. Global inflation has continued to decline through 2025. Inflation is especially low throughout Asia, and negative in China".
It added: "Slow growth in disposable incomes and house prices continue to weigh on economic activity, but lower interest rates are supporting a recovery in consumption."
Rabobank said it was now forecasting a further 25bps cut to the OCR in November, to 2.25%.
