A general view of the city skyline on November 09, 2023 in Auckland, New Zealand.
Fiona Goodall | Getty Images
New Zealand’s central bank expectedly slashed its benchmark interest rate by 50 basis points on Wednesday, marking a third straight cut, as the country strives to boost its struggling economy.
The Reserve Bank of New Zealand’s interest rate now stands at 4.25%. Economists polled by Reuters had expected the bank to cut its rate by 50 bps.
In October, the RBNZ had also cut the cash rate by 50 bps, following a 25 bps cut in August. In its Wednesday statement, the central bank said economic activity in New Zealand remains subdued and output continues to be below its potential.
GDP growth in New Zealand has been slowing, falling 0.2% in the June 2024 quarter, compared with the March 2024 quarter, marking the fourth quarter of contraction. It also fell 0.2% on an annual basis.
“Economic activity in New Zealand remains subdued and output continues to be below its potential,” the bank said.
Lower inflation has provided the country room to cut rates and fuel economic growth.
The RBNZ said that price growth pressures have eased with inflation remaining near the midpoint of its medium term target range of 1% and 3%.
New Zealand’s annual inflation, which had shot up to an over three-decade high of 7.3% in the June quarter 2022, has cooled substantially. It stood at 2.2% in the September 2024 quarter, according to figures released by Stats NZ in October.
“If economic conditions continue to evolve as projected, the Committee expects to be able to lower the OCR [official cash rate] further early next year,” RBNZ said.
It added that economic growth is expected to recover in 2025 as lower interest rates boost investment and spending. However, employment growth is expected to remain weak until mid-2025.