RBNZ Review: More Dovish Surprise
RBNZ cut its cash rate by 50bp to 2.5%
Forward guidance dovish pointing towards more potential cut
The RBNZ cut its cash rate by 50bp to 2.5% in the October meeting with no official revision to the OCR forecast since August. Different from the August cut, the 50bps cut in October is a consensus cut, which means all members agree that short term CPI may be volatile but the long time economic condition needs more accommodation. In the forward guidance, the RBNZ is consistent with their August forecast which points towards at least one more cut in the November meeting.
Some key takeaways:
Spare Capacity: The RBNZ highlight "spare capacity" in their statement. The priority of such "spare capacity" has even exceeded inflation. The RBNZ sees prolong spare capacity in New Zealand and weighed being accommodative to stimulate the economy to be more important than containing any short term spike in CPI.
Short term Inflation Expectation: It is forecasted Q3 CPI will be at 3% y/y but should be converging towards the mid point of target range in 2026. They also see global inflationary pressure to ease further in 2026.
Slowing Outlook: The RBNZ believe the global economic outlook will slow in 2026 after the AI boom in 2025. Thus, balancing the upside and downside risk with the broader picture, the RBNZ thinks that lower interest rate will be more beneficial to New Zealand and will be cutting further.