Data Flash (New Zealand)
This morning the RBNZ surprised markets with a 50bps cut in the official cash rate (OCR) to 5.25%. The press statement
accompanying the move is reproduced below.
Given that the RBNZ had passed up the opportunity to cut Tuesday morning, we - and the market - had assumed that the
Bank would probably wait until it scheduled meeting on 3 October to adjust rates downward, most probably by 25bps. We
had expected a further 25bps cut expected in November. The RBNZ's aggressive and unscheduled move - which the RBNZ notes
was triggered primarily by last week's tragic events in the US - is designed to bolster confidence and is a
precautionary move based on the Bank's analysis of the developments as they have unfolded so far.
At this stage we do not expect a further rate cut at the scheduled interim OCR review on 3 October. However, views
regarding the global outlook remain extremely fluid and it is not difficult to envisage scenarios in which a further
near-term easing move may be undertaken.
Our running assumption is that the RBNZ will take rates lower from here and we have penciled in a 25bps rate cut at 14
November Monetary Policy Statement meeting. The clear risk is that the RBNZ deliver more easing, and sooner, than this
central scenario suggests. We think that the RBNZ will not hesitate to rapidly reverse these precautionary moves should
the deterioration in global outlook and its impact on New Zealand prove less severe than what appears to be the RBNZ's
current view. Thus some re-tightening could occur as early as Q2 2002, especially if the NZD remains around current
It is worth noting that on most measures, real monetary conditions in New Zealand are now as easy as at any time in the
country's recent history. They are also easier than in most developed countries, including the US, despite the fact that
recent growth momentum in New Zealand has been stronger than elsewhere.
RBNZ cuts OCR to 5.25 per cent
The Reserve Bank today cut the Official Cash Rate (OCR) by 50 basis points from 5.75 per cent to 5.25 per cent.
Reserve Bank Governor Don Brash said "We are making this unscheduled interest rate cut primarily because of recent
tragic events in the United States.
"It seems more likely now that the current slowdown in the world economy will worsen. In these circumstances, New
Zealand's short-term economic outlook would be adversely affected, although any downturn might well be relatively
"New Zealand business and consumer confidence will be hurt by recent international and domestic developments, and
today's move is a precaution in a period of heightened uncertainty.
"Our focus, as always, is to keep core inflation in check. Our present judgement is that interest rates do not need to
be as high as previously to achieve this," Dr Brash concluded.
The next scheduled review of the OCR is on Wednesday 3 October.