Orr Speech: RBNZ Governor speaks on policy outlook following the rate cut
|Reserve Bank of New Zealand’s (RBNZ) Governor Adrian Orr is speaking at the press conference after the August monetary policy announcement, presenting the prepared remarks on the policy statement and responding to media questions.
Earlier on, the RBNZ decided to cut the policy rate by 25 basis points (bps) from 5.50% to 5.25%, in a surprise move.
RBNZ press conference key quotes
We are confident inflation back in its target band can commence re-normalize rates.
We considered a range of moves, consensus was for 25 bps.
Keen to see actual inflation data.
Projections show we are going back into period of low and stable inflation.
Broad range of indicators are consistently soft.
Reasonable first step for monetary easing, in strong position to move calmly.
High frequency data show economy weakening.
Its a good news story of pricing intentions changing.
Economic Indicator
RBNZ Press Conference
Following the Reserve Federal´s economic policy decision, the Reserve Bank Governor gives a press conference regarding monetary policy. His comments may influence the volatility of NZD and determine a short-term positive or negative trend.
Read more.Next release: Wed Aug 14, 2024 03:00
Frequency: Irregular
Consensus: -
Previous: -
Source: Reserve Bank of New Zealand
The Reserve Bank of New Zealand (RBNZ) holds monetary policy meetings seven times a year, announcing their decision on interest rates and the economic assessments that influenced their decision. The central bank offers clues on the economic outlook and future policy path, which are of high relevance for the NZD valuation. Positive economic developments and upbeat outlook could lead the RBNZ to tighten the policy by hiking interest rates, which tends to be NZD bullish. The policy announcements are usually followed by Governor Adrian Orr’s press conference.
This section below was published at 02:00 GMT following the Reserve Bank of New Zealand (RBNZ) policy announcements.
The Reserve Bank of New Zealand (RBNZ) lowered the Official Cash Rate (OCR) by 25 basis points (bps) from 5.50% to 5.25%, following the conclusion of the August policy meeting on Wednesday.
The market participants anticipated a rates on-hold decision.
Summary of the RBNZ Monetary Policy Statement (MPS)
Inflation is declining.
Inflation returing into target band.
Service inflation expected to decline.
Pace of further easing will depend on commitee's confidence that pricing behaviour remains consistent with a low inflation environment.
CPI expected to remain target mid-point over foreseeable future.
Minutes of the RBNZ interest rate meeting
Weakening in domestic economic activity observed in the July monetary policy review has become more pronounced and broad-based.
Members noted that monetary policy will need to remain restrictive for some time to ensure that domestic inflationary pressures continue to dissipate.
New zealand’s economic activity and near-term inflation indicators now resemble those in countries in which central banks have started cutting policy rates.
The pace of further easing will thus be conditional on the committee’s confidence that pricing behaviour is continuing to adapt to a low-inflation environment.
A broad range of high-frequency indicators point to a material weakening in domestic economic activity in recent months.
Recent indicators give confidence that inflation will return sustainably to target within a reasonable time frame.
The output gap is now assessed to be more negative than was assumed in the may monetary policy statement, indicating increased spare capacity.
Headline CPI inflation expected to return to the target band in the september quarter.
Committee agreed there was scope to temper the extent of monetary policy restraint.
Alongside restrictive monetary policy, an earlier or larger impact of tighter fiscal policy could be constraining domestic demand.
The committee observed that the balance of risks has progressively shifted since the may monetary policy statement.
While domestic financial conditions remain restrictive, they have loosened over recent months.
Broad range of indicators suggesting the economy is contracting faster than anticipated.
Committee felt that the ocr track in the projection reflected its view on the policy strategy that would best deliver on its remit.
RBNZ updated economic forecasts
RBNZ sees Official Cash Rate at 4.1% in September 2025 (pvs 5.4%).
RBNZ sees TWI NZD at around 69.5% in September 2025 (pvs 71.0%).
RBNZ sees Official Cash Rate at 4.92% in December 2024 (pvs 5.65%).
RBNZ sees Official Cash Rate at 3.85% in December 2025 (pvs 5.14%).
RBNZ sees annual CPI 2.4% by September 2025 (pvs 2.2%).
RBNZ sees Official Cash Rate at 2.98% in September 2027.
NZD/USD reaction to the RBNZ interest rate decision
The New Zealand Dollar comes under intense selling pressure in an immediate reaction to the RBNZ surprise dovish move. The NZD/USD pair currently trades around 0.6040, down 0.63% on the day.
(This story was corrected on August 14 at 02:22 GMT to say that the Reserve Bank of New Zealand lowered the Official Cash Rate by 25 basis points from 5.5% to 5.25%, not 2.25%.)
This section below was published on Tuesday at 21:15 GMT as a preview of the Reserve Bank of New Zealand (RBNZ) interest rate decision.
- The Reserve Bank of New Zealand is set to maintain its key interest rate at 5.50% on Wednesday.
- The August policy decision appears to be a “close call” between a hold and a cut, as inflation expectations fall.
- The New Zealand Dollar’s fate hinges on the RBNZ policy action, updated forecasts and Governor Orr’s words.
Market participants are eagerly awaiting the Reserve Bank of New Zealand (RBNZ) interest rate decision, due on Wednesday at 02:00 GMT, as it is expected to be a “close call” for the central bank.
The RBNZ is expected to hold the Official Cash Rate (OCR) at 5.50%, maintaining that level since May 2023. However, the market is heavily divided, with analysts and industry experts anticipating a rates on-hold decision. A Reuters poll of 31 analysts, found 12 predicting a cut with the rest supporting the status quo.
On the other hand, swap markets imply a roughly 70% probability of the bank lowering the cash rate by 25 basis points (bps) to 5.25%. Markets are pricing in 90 bps of easing this year and another 148 basis points in 2025.
What to expect from the RBNZ interest rate decision?
Markets leaned in favor of a dovish policy pivot by the RBNZ after the central bank’s quarterly survey showed a continued drop in inflation expectations.
New Zealand's inflation expectations fell to three-year lows of 2.03% in the third quarter, compared to 2.33% in the June quarter. Meanwhile, the survey data from 33 business leaders and professional forecasters saw annual price increases averaging 2.40% over the year ahead, down from 2.73% previously.
However, some of the other fxstreet.com/economic-calendar" data-fxs-autoanchor="">economic indicators suggest that the RBNZ could extend the pause. Non-tradable inflation continues to be a concern for the central bank, as domestic inflation remains stubbornly high. Non-tradeable inflation was 5.4% in the year to the June quarter, declining from the 5.8% print in the second quarter, although still above the 5.0% level.
The country’s labor market still showed some signs of tightness after the Employment Change rebounded by 0.4% in the second quarter, up from a 0.2% decline in Q1 and way above the market estimate of a 0.2% fall. The Unemployment Rate rose from 4.4% to 4.6%, lower than the expected 4.7% figure.
Additionally, New Zealand’s ANZ Business Confidence Index jumped to 27.1 in July from 6.1 in June, showing improving firms’ morale.
As the market remains split on the likely RBNZ policy move this week, traders will pay close attention to the language of the Monetary Policy Statement (MPS) and the updated economic projections for fresh hints on the bank’s outlook on interest rates.
How will the RBNZ interest decision impact the New Zealand Dollar?
The main focus will be on the RBNZ’s OCR forecasts and a downward revision to it for this year could reverberate the market's expectations of a rate cut by the RBNZ earlier than previously projected in the third quarter of 2025. The RBNZ currently forecasts the OCR to peak at 5.65% in Q4 2024.
The New Zealand Dollar (NZD) will be thrown under the bus if the central bank cuts the rate by 25 bps to 5.25% while revising down its OCR forecast for 2024. In such a scenario, NZD/USD could revisit the nine-month low of 0.5900.
In case the central bank holds the rate, any dovish tweak in the policy statement and a potential downward revision to the OCR projections could overshadow and act as a headwind for the Kiwi Dollar.
NZD/USD could extend its recovery momentum only if the MPS expresses concerns over sticky non-tradeable goods and services inflation and acknowledges upside risks to inflation, delivering a hawkish hold outcome. The New Zealand Dollar could also benefit should the bank retain its hawkish bias while maintaining the OCR estimates.
Dhwani Mehta, FXStreet’s Senior Analyst, offers a brief technical outlook for trading the New Zealand Dollar on the RBNZ policy announcements: “The NZD/USD pair is consolidating the previous week’s recovery, capitalizing on a bullish 14-day Relative Strength Index (RSI) on the daily chart.”
“If buyers manage to find acceptance above the key 200-day Simple Moving Average (SMA) at 0.6087, the upside will open up toward the July high of 0.6154. Further up, the 0.6200 threshold will be in sight. Conversely, failure to defend the 21-day SMA at 0.5974 could fuel a fresh downtrend toward the 0.5900 level, below which the April low at 0.5852 will get tested,” Dhwani adds.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.
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