By Lucy Craymer
WELLINGTON (Reuters) – New Zealand’s central bank cut its benchmark rate by 50 basis points to 3.75% on Wednesday and policymakers flagged further reductions in borrowing costs amid moderating inflation as they sought to revive a struggling economy.
The decision was in line with a Reuters poll where 32 of the 33 economists surveyed forecast the Reserve Bank of New Zealand (RBNZ) will cut the cash rate for the fourth straight meeting, and by half a percentage point.
The central bank has now cut rates by 175 basis points since August, with a slowdown in inflation giving policymakers leeway to extend their easing efforts in a much needed boost for an economy struggling to emerge from a recession.
“The economic outlook remains consistent with inflation remaining in the band over the medium term, giving the Committee confidence to continue lowering the OCR,” the RBNZ said in its accompanying policy statement.
The central bank is now forecasting the cash rate will be at 3.4% in the second quarter of 2025 and at 3.1% by the end of 2025 – lower than the bank’s November forecasts.
“If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025,” the statement said.
The RBNZ said it is well placed to maintain price stability over the medium term and respond to future inflationary shocks, but added that global uncertainty over tariff policies pose some risks to the economy.
A global front-runner in withdrawing pandemic-era stimulus, the RBNZ lifted rates 525 basis points since October 2021 to curb inflation in the most aggressive tightening since the official cash rate was introduced in 1999.
The punishing borrowing costs, however, took a heavy toll on demand and tipped the economy into recession in the third quarter of last year – the worst downturn outside of the pandemic since 1991.
The dire state of the economy has added urgency to policymakers efforts to stimulate demand. The government has already abandoned hopes for a return to budget surpluses, seeing deficits for the next five years.
Markets expect a slowdown in inflation will give the RBNZ sufficient leeway to keep cutting rates in the months ahead.
New Zealand’s annual inflation has come off in recent months and is currently at 2.2%, but the central bank said a volatile period ahead will probably see it increase to 2.7% in the third quarter before moderating again.
“Consumer price inflation in New Zealand is expected to be volatile in the near term, due to a lower exchange rate and higher petrol prices,” the statement said.
(Reporting by Lucy Craymer; Editing by Muralikumar Anantharaman and Shri Navaratnam)
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