MNI BRIEF: RBNZ Cuts OCR 50bp To 2.5%

The Reserve Bank of New Zealand’s Monetary Policy Committee cut the Official Cash Rate by 50 basis points to 2.5% on Wednesday, citing prolonged spare capacity and associated downside risks to medium-term activity and inflation.

“Domestic inflationary pressures have continued to moderate as projected, giving the Committee more confidence that inflationary pressures are contained,” the MPC said in a statement following the decision, noting that members also deliberated on a smaller 25bp cut. (See MNI RBNZ WATCH: MPC To Cut, Eyes 50 Basis Points)

“Some members continue to put relatively more weight on the risk that excess precaution by households and businesses and, therefore, subdued economic activity and employment persists. A larger reduction in the OCR could mitigate this risk by providing a clear signal that supports consumption and investment." the statement said.

The MPC added that it remains open to further reductions in the OCR if required to ensure inflation settles sustainably near the 2% mid-point of its target range over the medium term.