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14/08/24
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NZD Drops as RBNZ Cuts Rates
On Wednesday, the New Zealand dollar was down 1%, after the Reserve Bank cut interest rates and NZD/USD traded at about 0.6017 in the European session.
It was not clear whether the Reserve Bank of New Zealand would hold rates or cut rates for the first time since Mar. 2020. The central bank ultimately cut the cash rate by 0.25% to 5.25%.
According to the RBNZ statement, inflation expectations, core, and headline inflation were moving consistently with stable and low inflation. The statement noted that though services inflation is still high it will likely continue to drop and CPI is anticipated to stay around the 2% midpoint of the target range of between 1% and 3% in the foreseeable future.
The RBNZ indicated that it was planning to continue reducing rates, as its forward guidance showed one more cut before the end of the year and three or more cuts by the middle of next year.
That projection was far more aggressive than the one in May when the RBNZ said that the first rate cut would likely only be after mid-2025. The RBNZ minutes stated that the economy was contracting faster than expected.
The message from the meeting is that the central bank is happy with the inflation picture and is starting to cut rates aggressively.
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