WELLINGTON: New Zealand’s central bank cuts interest rates by half a percentage point, stepping up the pace of easing as policymakers become more concerned about the economic slowdown.

The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee lowered the official cash rate (OCR) to 4.75% from 5.25% yesterday in Wellington, as anticipated by 19 of 23 economists in a Bloomberg survey.

The remainder expected a quarter-point cut. It is the RBNZ’s second straight reduction after it began its easing cycle with a quarter-point cut in August.

“The committee agreed that the economic environment provided scope to further ease the level of monetary policy restrictiveness,” the RBNZ said.

Future changes to the OCR will depend on the bank’s “evolving assessment of the economy”, it said.

New Zealand’s economy has stalled, unemployment is rising and house prices are falling as the prolonged period of high borrowing costs curbs demand.

Economists said inflation was now slowing rapidly, and some have warned it may undershoot the 2% midpoint of the RBNZ’s 1% to 3% target range.

The New Zealand dollar fell more than a quarter of a US cent after the decision to 61 cents in Wellington.

The decision was a policy review, which is not accompanied by fresh economic forecasts or a press conference.

The shift to bigger cuts represents another abrupt change of stance for the RBNZ.

It said in May it wouldn’t start easing policy until the second half of 2025, and after its Aug 14 pivot governor Adrian Orr said the bank intended to move “calmly” and at a “measured pace”.

The RBNZ’s latest forecasts in August showed the annual inflation rate falling to 2.3% in the third quarter from 3.3% in the second. That data is due Oct 16.

“The committee agreed that monthly price indices signal a continued decline in consumer price inflation,” the RBNZ said in its record of the meeting.

“Business price-setting behaviour is now more consistent with the committee’s inflation remit.”

Gross domestic product declined 0.2% in the three months through June, putting the economy on the brink of its second recession in less than two years.

Slowing demand is tipped to boost the jobless rate when third-quarter data is published in early November.

“Economic growth is weak, in part because of low productivity growth, but mostly due to weak consumer spending and business investment,” the RBNZ said.

“High-frequency indicators point to continued subdued growth in the near term.”

Many central banks have begun cutting rates and the US Federal Reserve kicked off its easing cycle last month with a half-point reduction.

The Reserve Bank of Australia is a notable exception, holding its key rate steady at 4.35% due to upside inflation risks.

A majority of economists polled before the decision expected the RBNZ would follow up with a half-point cut at its final meeting of the year on Nov 27. 

 - Bloomberg