New Zealand’s Central Bank stuns market with a surprise 50-bp rate-cut


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New Zealand’s Central Bank stuns market with a surprise 50-bp rate-cut

On Wednesday, the 7th of August 2019, the Reserve Bank of New Zealand (New Zealand Central Bank), shortly dubbed as RBNZ, stunned financial markets with a flabbergasting 50-basis point rate-cut on its official cash rate (OCR) to a record low of 1 percent, saying that RBNZ would look forward to keep policy softer for a longer duration in the wake of withering economic risks.

Nonetheless, Kiwis had never witnessed an OCR below 1.50 percent, However, OCR or Official cash rate, a widely used term in Australia and New Zealand, is almost synchronous to an excess reserve interest rate, a rate at which central banks usually lends money to other commercial banks.

In point fact, Wednesday’s (August 7th) surprise move of RBNZ pulled the New Zealand Dollar down to a ten-month low figure to $0.6404 against its American counterpart. Followed by the reveal of a 50-basis point interest rate cut of RBNZ, missing analysts’ estimate were expecting a rate-cut of 25-basis point, Kiwi dollar tumbled 2.02 percent immediately to $0.6398 during the late-midday Asia-Pacific trading hours, a level never seen since January 16th, 2016.

Expressing concerns over a sluggish GDP growth in New Zealand alongside a quickly evolving geo-political gearstick, Reserve Bank of New Zealand’s monetary policy committee said in a statement on Tuesday (August 6th), “The Monetary Policy Committee agreed that a lower OCR is necessary to continue to meet its employment and inflation objectives.

GDP growth has slowed over the past year and growth headwinds are rising. In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets. ” Aside from that, following Tuesday’s (August 6th) rate-cut, RBNZ had been quoted saying that another rate-cut might have been at the dine, which could curb the OCR below 1.00 per cent.