The Reserve Bank of New Zealand (RBNZ) has cut interest rates by 50 basis points, reflecting policymakers' growing concerns about economic slowdown and accelerating the pace of easing.

The Monetary Policy Committee of the RBNZ reduced the Official Cash Rate (OCR) from 5.25% to 4.75% on Wednesday, aligning with the expectations of 19 out of 23 economists, while the rest anticipated a 25 basis point rate cut. This marks the second consecutive rate cut by the RBNZ following the initial 25 basis point reduction in August.

"The Committee is unanimous that the economic environment provides scope for further easing of the level of monetary policy restrictions," the RBNZ stated, indicating that future adjustments to the OCR will depend on the central bank's "ongoing assessment of the evolving economic situation."

New Zealand's economy has been in a standstill due to prolonged high borrowing costs, which have suppressed demand, led to rising unemployment, and caused a decline in housing prices. Economists have noted that inflation is currently slowing rapidly, with some warning that it may fall below the 2% midpoint of the RBNZ's 1-3% target range.

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Nick Tuffley, Chief Economist at ASB Bank, stated that the RBNZ has provided little indication of its next move, and another 50 basis point rate cut is "not a foregone conclusion."

"However, the risks we see are that the data will come in below the RBNZ's expectations, and we still anticipate another 50 basis point rate cut in November," he said.

Following the announcement of the rate decision, the New Zealand dollar extended its losses, the stock market continued its upward trend, and New Zealand government bond yields fell.

Today's rate decision was for policy evaluation purposes, with no new economic forecasts released and no press conference held.

Shifting Stance

The move to a more substantial rate cut represents another abrupt shift by the RBNZ.In May of this year, the central bank had indicated that it would not begin to ease policy until the second half of 2025. However, after the shift on August 14th, Governor Adrian Orr stated that the bank intended to act "calmly" at a "measured pace."

The latest August forecast from the Reserve Bank of New Zealand shows that the annual inflation rate for the third quarter dropped from 3.3% in the second quarter to 2.3%. This data is set to be released on October 16th.

The Reserve Bank of New Zealand stated in its meeting minutes: "The committee unanimously agreed that the monthly price index indicates a continued decline in consumer price inflation. Corporate pricing behavior is now more in line with the committee's inflation mandate."

The New Zealand Institute of Economic Research said in its quarterly survey last week that only 7% of businesses are expected to raise prices in the last three months of this year.

In the three months ending June, New Zealand's Gross Domestic Product (GDP) fell by 0.2%, putting the economy on the brink of its second recession in less than two years. The market currently anticipates that a slowdown in demand will push up the unemployment rate, which will be announced in early November for the third quarter.

The Reserve Bank of New Zealand stated: "Economic growth is weak, partly due to slow productivity growth, but mainly due to weak consumer spending and business investment. High-frequency indicators suggest that growth will continue to slow in the short term."

Globally, many central banks have already begun to cut interest rates, with the Federal Reserve initiating an easing cycle last month by lowering rates by 50 basis points. The Reserve Bank of Australia stands as an exception, as it has kept its key interest rate stable at 4.35% due to rising inflation risks.

The Reserve Bank of New Zealand stated: "The committee discussed the respective merits of cutting rates by 25 basis points and 50 basis points. They unanimously agreed that a 50 basis point cut at this time is most consistent with the task of maintaining low and stable inflation."

The bank added that current short-term market pricing is in line with this decision.

Most economists surveyed before today's decision expected the Reserve Bank of New Zealand to cut rates by another 50 basis points at its annual final meeting on November 27th.The Reserve Bank of New Zealand stated: "The outlook is broadly consistent with the August Monetary Policy Statement. Members agreed that the 4.75% OCR remains restrictive, allowing monetary policy to be well positioned to respond to any short-term surprises."