New Zealand central bank stuns markets with 50bp rate cut

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The main entrance to the Reserve Bank of New Zealand in central Wellington. (Photo from Reuters file)

WELLINGTON: New Zealand’s central bank stunned markets on Wednesday by slashing the official treasury rate (OCR) by 50 basis points more than expected to a record 1.00%, and appeared poised to keep its policy lower longer in the face of growing economic risks.

The surprise move by the Reserve Bank of New Zealand (RBNZ) pushed the Kiwi dollar to a low of more than 3-1 / 2 years, also dragging its Australian cousin lower.

The Kiwi dollar lost 2% to $ 0.6378, a level not seen since early 2016 and the largest single-day percentage decline since late March, and comes after the Trump administration called China a currency manipulator in a dramatic escalation of the Sino-American escalation. trade war.

“The Monetary Policy Committee agreed that a cut in OCR was necessary to continue to meet its employment and inflation targets,” the RBNZ Monetary Policy Committee said in a statement accompanying its decision on rates.

“GDP growth has slowed over the past year and the headwinds for growth are increasing. In the absence of additional monetary stimulus, employment and inflation would likely slow down relative to our targets,” the report said. communicated.

The central bank cut its cash rate by 25 basis points (bps) in May as international trade frictions cloud the growth outlook and economists polled by Reuters predicted policymakers would cut rates again this week. ‘a quarter of a percentage point.

The New Zealand dollar fell 1% to $ 0.6443, a 10-month low, and bond yields fell after the rate decision as markets forecast further easing, possibly as early as the month next.

RBNZ forecasts released with the statement show that another reduction is possible by the end of the year, which would take OCR to below 1%.

The closely correlated Australian dollar fell to its lowest since 2009 on Wednesday on expectations the Reserve Bank of Australia will follow the lead of the RBNZ.

New Zealand’s move follows rate cuts by global policymakers who have been forced to inject more stimulus as fears grow about the widening fallout from the US trade dispute. and China on the world economy.

And this week’s events sounded further alarm bells for policymakers, as the trade war took a dramatic turn for the worse on Monday after the U.S. government called China a currency manipulator for the first time since 1994. .

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