New Zealand dollar skids as RBNZ cuts rates, flags more to come
By Wayne Cole
SYDNEY, Aug 14 (Reuters) -The New Zealand dollar slammed into reverse on Wednesday after the central bank cut interest rates a year earlier than its own projections and signalled a lot more to come, sending bond yields diving.
The Reserve Bank of New Zealand (RBNZ) wrapped up its latest policy meeting by cutting the official cash rate (OCR) by 25 basis points to 5.25%, the first easing since early 2020.
"With headline CPI inflation expected to return to the target band in the September quarter and growing excess capacity expected to support a continued decline in domestic inflation, the Committee agreed there was scope to temper the extent of monetary policy restraint," the RBNZ said.
It cautioned that policy would need to be restrictive for a while yet, but still projected a cash rate of 4.92% by December and 3.85% at the end of 2025.
Markets had priced in a near 69% chance of a quarter-point cut following a string of softer economic data and a dovish turn by the central bank back in July.
Analysts had been more split, with 19 of 31 polled by Reuters expecting rates to stay on hold this week.
Investors reacted by knocking the kiwi dollar down 0.75% to $0.6032 NZD=D3, erasing most of the 1% gains made overnight as soft U.S. producer price data slugged the U.S. dollar.
Swaps shifted to imply another 29 basis points of easing by October and 67 basis points of easing by year end. Rates are seen near 3.0% by the end of 2025, well below the RBNZ's projection. Bank bill futures 0#NBB: also jumped.0#RBNZWATCH
"Today's RBNZ cut flags the potential path global policy rates could pivot to, perhaps sooner than their own guidance," said Krishna Bhimavarapu, APAC economist at State Street Global Advisors.
"Policy rates have been sufficiently restrictive in most economies, including the U.S. and especially Australia, and this is the time for central banks to safeguard growth and ensure soft-landing."
The Reserve Bank of Australia (RBA) has been signalling there was little scope for a rate cut this year given inflation remains stubbornly high.
Futures still imply around a 58% chance it might ease in November, in part because the Federal Reserve will likely have joined many other major central banks in easing by then.
The limited outlook for easing helped underpin the Aussie at $0.6625 AUD=D3, after rising 0.7% overnight to reach a three-week high of $0.66395. Resistance lies at $0.6644 and $0.6702, with support at $0.6600.
Reporting by Wayne Cole; editing by Miral Fahmy
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