RBNZ cuts interest rate by 50 bps to 2.50% vs 25 bps expected
The Reserve Bank of New Zealand (RBNZ) announced on Wednesday that it cut the Official Cash Rate (OCR) by 50 basis points (bps) to 2.50% from 3.00% following the conclusion of the October policy meeting on Wednesday.
The decision came as a surprise to markets, which had widely expected the RBNZ to cut the OCR by 25 bps
Summary of the RBNZ Monetary Policy Review (MPR)
Annual consumers price index inflation is currently around the top of the monetary policy committee's 1 to 3 percent target band.
Higher near-term inflation could prove to be more persistent.
Committee remains open to further reductions in the OCR as required for inflation to settle sustainably near the 2 percent target mid-point in the medium term.
With spare capacity in the economy, inflation is expected to return to around the 2 percent target mid-point over the first half of 2026.
Economic activity through the middle of 2025 was weak.
There are upside and downside risks to the inflation outlook in New Zealand.
Minutes of the RBNZ interest rate meeting
The case for reducing the OCR by 50 basis points emphasised prolonged spare capacity and the associated downside risk to medium-term activity and inflation.
The committee discussed the options of reducing the OCR by 25 basis points or by 50 basis points at this meeting.
Financial conditions are influenced by the current level and expected future path of the OCR.
Committee has revised its assessment of current spare capacity only marginally in response to new GDP and activity data.
NZD/USD reaction to the RBNZ interest rate decision
The New Zealand Dollar attracts some sellers in an immediate reaction to the RBNZ interest rate decision. The NZD/USD pair currently trades at 0.5748, down 0.87% on the day.
New Zealand Dollar Price This week
The table below shows the percentage change of New Zealand Dollar (NZD) against listed major currencies this week. New Zealand Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.69% | 0.25% | 1.93% | 0.01% | 0.17% | 1.22% | 0.37% | |
| EUR | -0.69% | -0.54% | 1.15% | -0.71% | -0.56% | 0.49% | -0.36% | |
| GBP | -0.25% | 0.54% | 1.78% | -0.17% | -0.02% | 1.04% | 0.19% | |
| JPY | -1.93% | -1.15% | -1.78% | -1.82% | -1.77% | -0.75% | -1.57% | |
| CAD | -0.01% | 0.71% | 0.17% | 1.82% | 0.20% | 1.21% | 0.36% | |
| AUD | -0.17% | 0.56% | 0.02% | 1.77% | -0.20% | 1.06% | 0.20% | |
| NZD | -1.22% | -0.49% | -1.04% | 0.75% | -1.21% | -1.06% | -0.85% | |
| CHF | -0.37% | 0.36% | -0.19% | 1.57% | -0.36% | -0.20% | 0.85% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the New Zealand Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent NZD (base)/USD (quote).
This section below was published on October 8 at 20:15 GMT as a preview of the Reserve Bank of New Zealand (RBNZ) interest rate decision.
- The Reserve Bank of New Zealand is expected to deliver another 25 bps cut to the key interest rate on Wednesday.
- The Monetary Policy Review will be closely scrutinized for fresh cues on the RBNZ’s rate outlook.
- The New Zealand Dollar is set to experience a big reaction to the RBNZ monetary policy announcement.
The Reserve Bank of New Zealand (RBNZ) is widely expected to cut the Official Cash Rate (OCR) by another 25 basis points (bps) from 3% to 2.75% after concluding its October monetary policy meeting on Wednesday.
The decision will be announced at 01:00 GMT, but will not be accompanied by the Monetary Policy Statement (MPS). There will be no press conference by RBNZ Governor Christian Hawkesby following this meeting.
The New Zealand Dollar (NZD) is set for intense volatility in reaction to the central bank’s policy announcements.
What to expect from the RBNZ interest rate decision?
The RBNZ is on track to announce a second consecutive 25 bps rate cut in October. However, the swaps market is implying a 30% probability of a bigger 50 bps cut to 2.5%.
RBNZ Governor Christian Hawkesby, during the press conference following the August policy meeting, said that the “OCR projection troughs around 2.5%, consistent with further cuts.”
He further noted that the “next two meetings are live, no decisions have been made.”
Since then, New Zealand’s economic activity has significantly deteriorated. Therefore, a surprise 50 bps rate cut by the central bank this week cannot be ruled out.
However, markets believe that the RBNZ would want to wait for the inflation and employment data before opting for front-loading, as it continues to watch the incoming data.
“One of the key challenges with the RBNZ is its reliance on infrequent data releases. Markets need to wait until 19 October for the crucial third-quarter CPI report, which can steer rate expectations more than any forward guidance at next week’s meeting. Third quarter employment data won’t be available until 4 November,” ING FX Strategist said in his latest research note.
How will the RBNZ interest rate decision impact the New Zealand Dollar?
The NZD/USD pair has paused its recovery just under the 0.5850 barrier heading into the RBNZ event risk. Will the RBNZ trigger a fresh downtrend in the NZD?
That could happen if the central bank lowers borrowing rates by 50 bps or explicitly leaves the door open for a December rate cut by expressing a grim outlook on the economy or any dovish tweaks to the Monetary Policy Review (MPR).
On the other hand, the NZD could see a fresh advance if the central bank hints that it is nearing the end of the rate-cutting cycle.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for NZD/USD and explains:
“From a short-term technical perspective, the Kiwi pair remains vulnerable as the 14-day Relative Strength Index (RSI) turns lower below the midline. The pair has failed to surpass the critical 200-day Simple Moving Average (SMA) at 0.5845 on multiple occasions, suggesting that sellers continue to lurk at higher levels.”
“Buyers need acceptance above the aforesaid 200-day SMA barrier to initiate a fresh uptrend. Further up, the confluence zone of the 21-day SMA and the 50-day SMA around 0.5875 will act as a tough nut to crack on the way to 0.5900. The 100-day SMA at 0.5947 will be the last line of defense for sellers. Conversely, a sustained break below the September 26 low of 0.5754 will open the door toward the 0.5700 round level. The next downside cap is seen at the 0.5650 psychological barrier,” Dhwani adds.
New Zealand Dollar FAQs
The New Zealand Dollar (NZD), also known as the Kiwi, is a well-known traded currency among investors. Its value is broadly determined by the health of the New Zealand economy and the country’s central bank policy. Still, there are some unique particularities that also can make NZD move. The performance of the Chinese economy tends to move the Kiwi because China is New Zealand’s biggest trading partner. Bad news for the Chinese economy likely means less New Zealand exports to the country, hitting the economy and thus its currency. Another factor moving NZD is dairy prices as the dairy industry is New Zealand’s main export. High dairy prices boost export income, contributing positively to the economy and thus to the NZD.
The Reserve Bank of New Zealand (RBNZ) aims to achieve and maintain an inflation rate between 1% and 3% over the medium term, with a focus to keep it near the 2% mid-point. To this end, the bank sets an appropriate level of interest rates. When inflation is too high, the RBNZ will increase interest rates to cool the economy, but the move will also make bond yields higher, increasing investors’ appeal to invest in the country and thus boosting NZD. On the contrary, lower interest rates tend to weaken NZD. The so-called rate differential, or how rates in New Zealand are or are expected to be compared to the ones set by the US Federal Reserve, can also play a key role in moving the NZD/USD pair.
Macroeconomic data releases in New Zealand are key to assess the state of the economy and can impact the New Zealand Dollar’s (NZD) valuation. A strong economy, based on high economic growth, low unemployment and high confidence is good for NZD. High economic growth attracts foreign investment and may encourage the Reserve Bank of New Zealand to increase interest rates, if this economic strength comes together with elevated inflation. Conversely, if economic data is weak, NZD is likely to depreciate.
The New Zealand Dollar (NZD) tends to strengthen during risk-on periods, or when investors perceive that broader market risks are low and are optimistic about growth. This tends to lead to a more favorable outlook for commodities and so-called ‘commodity currencies’ such as the Kiwi. Conversely, NZD tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.
Author
FXStreet Team
FXStreet
