Daily Commentary BY THE CURVE TEAM –

RBNZ Delivers Rate Cut

9th of May, 2019

Six short weeks after warning that the next move in their cash rate would likely be down, the RBNZ delivered a 25bp cut, taking their cash rate to 1.50%.

While the RBA drags its feet in the hope that the ship will right itself and further monetary policy intervention won’t be required, their counterparts across the ditch are walking a different path. At their meeting yesterday, the RBNZ took a more preemptive approach and lowered their Overnight Cash Rate after warning it was the likely next move last meeting.

The move to lower the cash rate comes despite the RBNZ noting that “inflation is currently slightly below the mid-point of the inflation target, and that employment is broadly at the targeted maximum sustainable level”. As a result their move was more preemptive based on their outlook for the economy and their key objectives.

In the release accompanying the decision, the RBNZ said that “members agreed that given the recent weaker domestic spending, and projected ongoing growth and employment headwinds, there was a need for further monetary stimulus to meet its objectives.”

Interestingly they gave little guidance on the outlook and whether or not more cuts are on the table.

Being preemptive is something that our own central bank used to be renowned for. Were it to be facing the same circumstances as it is today, but with the cash rate at a higher starting point, it is likely that they would have already delivered a rate cut or two. Governor Lowe and the Board either are really confident in their outlook or still see a greater risk of lower rates from here than the benefit that it would deliver.

David Flanagan

Director - Interest Rate Markets