Asia FX dithers as dollar steadies before Powell speech; yen muted after CPI data
Investing.com-- The Reserve Bank of New Zealand (RBNZ) lowered its interest rates on Wednesday, as widely expected, as slowing domestic activity and spare capacity weighed on the growth outlook.
The central bank cut its official cash rate (OCR) by 25 basis points to 3.00%, following a hold in July.
Including Wednesday’s reduction, the RBNZ has lowered interest rates by a total of 250 basis points since August 2024.
Policymakers debated a 50 bp reduction
The Monetary Policy Committee voted 4-2 for the quarter-point cut, with a minority favouring a larger 50 basis-point reduction.
"The fact that members gave serious consideration to an outsized 50bp cut is quite telling," Capital Economics analysts said in a note.
The central bank said inflation is currently near the top of its 1-3% target band but is projected to ease toward 2% by mid-2026 due to significant spare capacity in the economy.
"If medium-term inflation pressures continue to ease in line with the Committee’s central projection, the Committee expects to lower the OCR further," the central bank said in a statement.
Governor Christian Hawkesby said the decision was aimed at supporting growth after the economy contracted in the June quarter, with household and business spending constrained by weaker employment, falling house prices, and higher costs for essentials.
"What we have here is a change in strategy where the RBNZ is choosing to look through the CPI inflation outlook for the next six months and instead take action to underwrite an improvement in growth," Westpac analysts said in a note.
The central bank projected a gradual recovery later in 2025 as lower borrowing costs feed through, but highlighted global trade tensions and U.S. tariff increases as headwinds.
Kiwi dollar tumbles on RBNZ’s dovish guidance
Consideration of an outsized 50 bp reduction weighed on the New Zealand dollar, with the NZD/USD pair slipping 1.1% to over a four-month low.
The RBNZ projects the cash rate will fall to 2.71% by the final quarter of 2025 and ease further to average 2.55% in early 2026.
"The OCR forecast of 2.71% for the December quarter implies at least one cut in the OCR at the next meeting in October, with around a 50% chance of a follow-up cut at the November meeting," Westpac analysts added.