The Reserve Bank of New Zealand (RBNZ) has reduced its benchmark interest rate by 50 basis points to 4.75% from 5.25%.
This marks the central bank’s second consecutive rate cut, following a 25-basis point reduction in August.
In a statement on Wednesday, the RBNZ explained the rate cut was driven by the need to maintain price stability, saying that it “assesses that annual consumer price inflation is within its 1-3% inflation target range and converging on the 2% midpoint.”
The central bank’s inflation target is crucial as the country grapples with inflationary pressures that surged to 7.3% in the June quarter of 2022, the highest in over 30 years.
While inflation has since eased to 3.3% as of the June quarter 2024, it remains above the RBNZ’s desired range.
The central bank also pointed out that economic activity in New Zealand remains subdued, largely due to restrictive monetary policy. Business investment and consumer spending have been weak, and employment conditions have continued to soften, with low productivity growth further hampering economic activity.
In light of these challenges, the RBNZ deemed the rate cut necessary to maintain low and stable inflation while avoiding instability in output, employment, and the value of the New Zealand dollar.
The central bank also reiterated its commitment to adjusting its policy stance in response to evolving economic conditions, noting that future rate changes will depend on inflation trends.