New Zealand: RBNZ surprises with larger 50 bps rate cut in October - UOB Group

Earlier today (8 Oct), the Reserve Bank of New Zealand (RBNZ) decided to lower the Official Cash Rate (OCR) by 50 bps from 3.00% to 2.50%. The reduction was a larger one than our, and the consensus forecast for a 25 bps move, UOB Group's Economist Lee Sue Ann reports.

RBNZ is likely to cut again at the next meeting

"The Reserve Bank of New Zealand (RBNZ) cut its official cash rate (OCR) by 50 bps to 2.50% earlier today (8 October), following a 25 bps cut in Aug. The reduction was a larger one than our, and the consensus forecast for a 25 bps move. Including the latest reduction, the RBNZ has lowered interest rates by a total of 300 bps since Aug 2024."

"Overall, we see today's move as front-loading the easing that the RBNZ had forecast back in Aug. The RBNZ has fewer policy meetings in a year compared to other global central banks and is the only G10 country that publishes quarterly inflation and jobs market figures, instead of monthly. That said, it is clear that the Committee remains open as to what the next move should be."

"We had expected the OCR to find a floor at 2.50% this cycle. However, we now think the RBNZ is likely to cut again at the next meeting on 26 Nov due to a stalling economy and weakening labour market. As such, we are penciling in another 25 bps cut by year-end, with that to mark the end of this easing cycle. There are risks on both sides of our forecast."