The kiwi tumbles after the reserve bank of New Zealand cuts cash rate to 1.5%

The Reserve bank of New Zealand (RBNZ) cut the country’s official cash rate to a fresh low of 1.5%

The kiwi Source: Bloomberg

The monetary policy committee decided to lower the cash rate to support employment and inflation “consistent with its policy remit” the bank said on Wednesday.

The RBNZ cut its benchmark interest rate by 25 basis points, with an outlook to support a cooling economy and ease global uncertainties.

While the rate cut had taken some analysts by surprise, a small majority of economists had expected the cut, as the official cash rate had remained unchanged since November 2016.

"Global economic growth has slowed since 2018, easing demand for New Zealand's goods and services," the RBNZ's monetary policy committee said in a statement

New Zealand dollar price

NZD/USD tumbled off the back of the news, falling to a six-month low of $0.6525. The Australian dollar lifted as a result and NZD/JPY fell as low as 71.88 in Tokyo following the cut.

AUD/NZD climbed 0.7%

The RBNZ said they expect inflation to return to target by 2021, and a lower official cash rate provides a balanced outlook for rates going forward.

Employment

The bank said employment is near its maximum sustainable level, and the outlook for employment growth is more passive now and they expect it to ease slightly in 2019. Due to the easing, the bank said it expects inflationary pressure is to rise only slowly.

"Given this employment and inflation outlook, a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates," the committee said in a statement.

The cut comes after Australia’s central bank decided to keep rates on hold on Tuesday, indicating an easing in the future if the unemployment rate did not fall.


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