RBNZ surprised markets by reducing rates to 1.00% - UOB

Researchers at UOB Group gave their assessment on the recent move on rates by the RBNZ.

Key Quotes

“The Reserve Bank of New Zealand (RBNZ) has delivered a more-aggressive interest rate cut, slashing its Official Cash Rate (OCR) by 50bps to 1.00%. In history, the only times the OCR had been cut by 50bps or more in a single sitting were after the 9/11 terrorist attack, during the Great Financial Crisis, and following the Christchurch earthquake”.

“In its accompanying press release, the RBNZ begun by saying “a lower OCR is necessary to continue to meet its employment and inflation objectives”; before stating its “ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level” in the concluding paragraph”.

“We had thought the RBNZ would prefer more time to evaluate the impact of the first rate cut in May, and wait out for further developments on the economic front. The RBNZ gave no forward guidance in its monetary policy statement. Its new projections signal a small chance of another rate cut later next year. However, at the press conference, RBNZ Governor Adrian Orr said that nothing is ruled out for future action, adding that the RBNZ is working on non-conventional policy and investigating a full tool set of measures they can utilize”.

“Overall, we see the bigger-than-expected move as pre-emptive in nature and the RBNZ is likely to wait for it out before considering further cuts in interest rates again. For now, we are keeping our 1-year forecast horizon for the OCR unchanged at 1.00%”.