New Zealand – RBNZ cuts policy rate by 25bps

The Reserve Bank of New Zealand (RBNZ) cut the official cash rate by 25bps to 3.25% at its monetary policy meeting on 11 June. The consensus forecast was for no change and money markets had priced in close to a 47% probability of a cut prior to the announcement. The RBNZ retained its easing bias, clearly signalling that further rate cuts might be on the cards. 

It noted that weak prospects for dairy prices and fuel prices rises will likely slow income and demand growth. The central bank reiterated its concern that wage inflation and expectations have been subdued.

The central bank restated its concern that house prices in Auckland continue to rise but took comfort from the fact that the tighter macroprudential measures that become effective in October will help ease the impact of investor activity in Auckland. Its current pan-New Zealand measures have been highly effective, reducing high loan-to-value loans to only 5.8% in April 2015 from more than 24% in August 2013. 

The RBNZ reiterated that the New Zealand dollar (NZD) remains overvalued and needs a significant downward correction. Dairy prices have dropped more than 50% from the highs in 2014, to a 5.5-year low in June.

"We now expect two more rate cuts in H2-2015",said Standard Chartered in a report on Thursday.