New Zealand central bank is stepping up the pace

As expected, the Reserve Bank of New Zealand (RBNZ) increased its pace of interest rate cuts this morning, this time lowering its benchmark interest rate by 50 basis points to 4.75 percent, following the surprise initial cut of 25 basis points in August, Commerzbank’s FX analyst Michael Pfister notes.

Monetary policy is likely to remain highly restrictive

“Although no new forecasts were released with this decision, the RBNZ made it clear in its statement where the focus is now: New Zealand's real economy is now weakening significantly, while confidence has increased that inflation will return to target in the near term.”

“Despite the expected rate cut, the Kiwi has weakened significantly in early trading. This is not surprising, as the statement sounds quite dovish and opens the door for another larger rate cut of 50 basis points. For the next decision at the end of November, quarterly inflation, which will be released next week, is likely to be the main factor.”

“In its most recent forecasts, the RBNZ assumed that it would fall significantly and that year-on-year inflation would not be far from the middle of the RBNZ's target range of 1-3 percent. If this is the case, monetary policy is likely to remain highly restrictive, so there is much to suggest that another large 50 basis point rate cut is on the cards after today's decision.”

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