New Zealand Interest Rate Cut
February 19, 2025
The Reserve Bank of New Zealand cut the Official Cash Rate by 50 basis points as had been expected. This was the third cut of a half percentage point that followed an initial 25-basis point reduction last August. At 3.75%, the new rate level is its lowest since November 2022 and down from 5.50% maintained for 15 months from May 2023 until August 2024. New Zealand consumer price inflation of 2.2% in the second half of 2024 was down from a peak of 7.3% in the second quarter of 2022 and at a 14-quarter low. Just released today, New Zealand producer price data showed producer output prices dip in 4Q 2024 dipping 0.1% from the prior quarter and settling back to an on-year 3.2% rate from 4.2% in 3Q. Likewise, producer input price inflation slowed to 3.0% from 5.0% in the prior quarter and 4.2% in 2Q 2024.
A statement from the RBNB argues that “The economic outlook remains consistent with inflation remaining in the 1-3% target band over the medium term, giving the Committee confidence to continue lowering the OCR,” but officials also enumerate inflationary risks such as a softer exchange rate, higher oil prices, and threatened changes in the international trading environment that warrant more caution going forward after the significant cut of the OCR during the past half year. The statement concludes, “If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025,” but Governor Orr in the subsequent press conference suggested that future incremental downticks are apt to revert to 25 basis points.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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