WELLINGTON, Feb. 19 (Xinhua) -- The Reserve Bank of New Zealand (RBNZ) lowered the official cash rate (OCR) by 50 basis points on Wednesday from 4.25 percent to 3.75 percent due to eased inflation to boost the subdued economy.
This has been the fourth reduction in the OCR by the central bank since August last year, which has now fallen 1.75 points since August to 3.75 percent, within economists' expectations.
The annual consumer price inflation remains near the midpoint of the RBNZ monetary policy committee's 1 to 3 percent target band, said an RBNZ statement.
"Firms' inflation expectations are at target and core inflation continues to fall towards the target midpoint," the statement said, adding the economic outlook remains consistent with inflation remaining in the band over the medium term, giving the committee confidence to continue lowering the OCR.
New Zealand's economic activity remains subdued. With spare productive capacity, domestic inflation pressures continue to ease, it said, adding price and wage-setting behaviors are adapting to a low-inflation environment, and the price of imports has fallen, also contributing to lower headline inflation.
The statement said economic growth is expected to recover during 2025, with employment growth expected to pick up in the second half of the year, higher prices for some of New Zealand's key commodities, and a lower exchange rate to increase export revenues.
Global economic activity is also likely to remain fragile over the medium term given increasing geoeconomic fragmentation, it said, adding consumer price inflation in New Zealand is expected to be volatile in the near term, due to a lower exchange rate and higher petrol prices.
The committee said it has scope to reduce the OCR further through 2025 if economic conditions continue to evolve as projected. However, economists expected future OCR cuts to be smaller.
Some New Zealand commercial banks had already announced they would cut their interest rates, ahead of the RBNZ announcement.
Finance Minister Nicola Willis said business and consumer confidence are both trending upwards. The BNZ and Business NZ reported last week that growth in manufacturing had risen to its highest level since September 2022.
"After a period of decades-high inflation, high interest rates and cost-of-living pressures, the economy is heading in the right direction," Willis said. ■
