New Zealand Central Bank Cuts Interest Rates by 50 Basis Points to Stimulate Struggling Economy

The central bank of New Zealand, in a move to stimulate its struggling economy, has announced a significant 50 basis points cut in its benchmark interest rate. This decision marks the third consecutive reduction and aims to boost economic activity in the country.

With the latest cut, the Reserve Bank of New Zealand's interest rate now stands at 4.25%. Economists, in a recent survey by Reuters, had anticipated this move, expecting the bank to make this reduction. The RBNZ had previously lowered the cash rate by 50 bps in October and by 25 bps in August.

Subdued Economic Activity

In its announcement, the central bank emphasized that economic activity in New Zealand continues to be subdued and the output is persistently below its potential. Recent data indicates a sluggish Gross Domestic Product (GDP) growth, which has contracted by 0.2% in the June 2024 quarter compared to the March 2024 quarter, marking the fourth consecutive quarter of contraction.

Inflation Easing

Furthermore, the annual inflation in New Zealand, which peaked at 7.3% in the June quarter 2022, has shown significant improvement. As per the latest data from Stats NZ, the annual inflation stood at 2.2% in the September 2024 quarter, reflecting a substantial decrease and creating scope for rate cuts.

Outlook for Economic Recovery

Looking ahead, the RBNZ has expressed optimism regarding a potential recovery in economic growth in 2025, driven by lower interest rates stimulating investment and spending. However, it has cautioned that employment growth may continue to remain weak until mid-2025. The central bank's projections suggest that if the current economic trajectory continues as anticipated, there may be further reductions in the official cash rate (OCR) early next year.