Official cash rate cut
The Reserve Bank of New Zealand has reduced the official cash rate (OCR) by 25 basis points to 5.25 per cent, delivering the first reduction in interest rates in years.
It took the step after saying annual consumer price inflation was returning to within the monetary policy committee’s guideline target band of one to three per cent.
“Surveyed inflation expectations, firms’ pricing behaviour, headline inflation, and a variety of core inflation measures are moving consistent with low and stable inflation,” the Reserve Bank adds.
“Services inflation remains elevated but is also expected to continue to decline, both at home and abroad, in line with increased spare economic capacity.
“Consumer price inflation in New Zealand is expected to remain near the target mid-point over the foreseeable future.”
The OCR climbed from 0.25 per cent in October 2021, where it had been for 18 months in response to the Covid-19 pandemic, before peaking at 5.5 per cent and staying there since May 2023.
The Reserve Bank reviews the OCR seven times a year, with the next one due to take place on October 9.
“The pace of further easing will depend on the committee’s confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the two per cent target,” it says.
Nicola Willis, Minister of Finance, says the OCR cut will be a welcome relief for families and businesses as New Zealand has been “suffering an acute cost-of-living crisis since the middle of 2021”.
“I am pleased the Reserve Bank’s decision to lower the OCR shows it has confidence that inflation is under control and the era of extreme price increases is over,” she adds.
“This also means Kiwis will pay less interest on their mortgage loans and on their credit cards. Taken together with our recent tax relief package, the cost of living will be even further reduced for families.”
Willis says the rate dropping also suggests the hard conditions businesses have faced are easing, and that in turn will give them confidence to invest, hire and grow.
