Published October 8. 2024 11:15 pm EST
Editor in Chief,
NEWSMOVESMARKETSFOREX ®
- RBNZ Cuts official cash rate by 50 bases points to 4.75%
- Inflation has moderated within RBNZ target range of 1-3%
- Global economic growth is currently below trend, with anticipated slowdowns in major economies such as the United States and China.
- Geopolitical tensions, particularly in the Middle East, pose significant risks to global economic stability, potentially impacting oil and shipping prices.
- Consumer spending and business investment, are lackluster due to previous restrictive monetary policies
- NZD/USD exchange rate fell, indicating market sentiment that the rate cut could widen the yield differential between New Zealand and other major currencies..
Reserve Bank of New Zealand Cuts Official Cash Rate to Stimulate Economic Growth
In a decisive move aimed at bolstering economic activity, the Reserve Bank of New Zealand’s Monetary Policy Committee has reduced the Official Cash Rate (OCR) by 50 basis points, bringing it down to 4.75 percent.
This decision, reached on October 9, 2024, reflects a comprehensive assessment of the current economic landscape, characterized by subdued growth and a need to maintain low and stable inflation.
The Committee noted that annual consumer price inflation remains comfortably within the targeted range of 1 to 3 percent, with expectations of convergence toward the 2 percent midpoint. This stability in inflation has allowed the Committee to consider a more accommodative monetary policy stance.
Economic conditions in New Zealand have been described as lackluster, largely due to previous restrictive monetary policies that have dampened consumer spending and business investment. Global economic growth is currently below trend, with anticipated slowdowns in major economies such as the United States and China.
Effects on the New Zealand Dollar
The New Zealand Dollar In the aftermath of the rate cut announcement, the New Zealand dollar (NZD) experienced a noticeable depreciation against the US dollar (USD). The NZD hit a low for the session after the RBNZ news release of .6093 and is currently trading below 40 on the daily RSI at .6098 as of 11:00pm est.
Currency traders reacted quickly to the news, reflecting concerns that lower interest rates would reduce the appeal of NZD-denominated assets.
Typically, a decrease in interest rates leads to diminished returns, prompting investors to seek higher yields elsewhere, particularly in the USD, which is often considered a safer investment.
Following the RBNZ’s decision, the NZD/USD exchange rate fell, indicating market sentiment that the rate cut could widen the yield differential between New Zealand and other major currencies.
Analysts noted that the expectation of further easing in monetary policy could exert additional downward pressure on the NZD in the near term.
Exporters benefiting from improved prices
Despite some exporters benefiting from improved prices—particularly in the dairy sector—the broader economic outlook remains challenging. Global economic growth is currently below trend, with anticipated slowdowns in major economies such as the United States and China. Additionally, geopolitical tensions, particularly in the Middle East, pose significant risks to global economic stability, potentially impacting oil and shipping prices.
Lower inflationary pressures
The Committee highlighted that increasing excess capacity in the New Zealand economy has led to lower inflationary pressures. As a result, the decision to cut the OCR aims to stimulate economic activity while avoiding unnecessary instability in output, employment, and interest rates. Furthermore, while wholesale and bank interest rates have declined, financial conditions remain restrictive.
Monetary Policy Committee’s Out-Look
The preference for shorter-term mortgage rates among borrowers is expected to enhance the responsiveness of household cash flows to OCR changes in the coming months. Looking forward, the Committee expressed optimism that inflation is on a path toward the target. Recent monthly price indices indicate a continued decline in consumer price inflation, and business surveys show a decreasing intent to raise prices due to weak demand.
In summary, the Monetary Policy Committee’s decision to lower the OCR to 4.75 percent underscores its commitment to fostering economic growth while maintaining price stability. The Committee remains vigilant about potential risks and will continue to assess economic conditions to inform future monetary policy decisions.
Please be sure to catch all the latest High Impact Major Market moving News Events on the Forex Weekly Economic Events Recap October 8, 2024.
We will see what this week ahead highly awaited MARKET MOVING Interest Bank rates decision report numbers brings us. For more Developing intriguing Central Bank Stories be sure to visit our Central Bank Breaking News Here: 
News Moves Markets Forex “real time digital currency news”, works to provide market intelligence, connecting our audience with a mix of the most latest insightful currency news in the Foreign exchange markets. Providing the Latest and the greatest in depth developing global central bank stories and financial news to traders and investors around the continent.
Connecting People to the markets through the power of information from a Black perspective.
