The Reserve Bank of New Zealand lowered its cash rate by 25 basis points to 5.25% on Wednesday.
The move surprised economists polled by Reuters, which were expecting the central bank to hold rates unchanged at 5.5%.
This is the first time the central bank has cut the official cash rate since March 2020.
In its release, the RBNZ noted that consumer price inflation is returning to its target range of 1% to 3%. It said "surveyed inflation expectations, firms' pricing behavior, headline inflation, and a variety of core inflation measures are moving consistent with low and stable inflation."
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While service inflation in the country is still elevated, the RBNZ expects it to decline, with consumer price inflation in New Zealand expected to remain near 2% "over the foreseeable future."
The central bank then said that the pace of further easing will depend on how confident it is about a low inflation environment and that inflation expectations are anchored around the 2% target.
The RBNZ also lowered its benchmark rate forecast to 4.92% by December, implying that the central bank could cut rates again before the end of the year.
Money Report
The trajectory of the estimated rate cuts have also steepened sharply. In its May monetary policy meeting, the bank forecast rates would be at 5.65% and 5.14% in December 2024 and 2025, respectively. It has now cut those figures to 4.92% for December 2024 and 3.85% by December 2025.
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