New Zealand Federal Reserve officials say they will discuss whether to cut interest rates by 25 basis points or 50 basis points in February
A senior official from the Reserve Bank of New Zealand stated on Thursday (November 28th) that the central bank will discuss whether to cut interest rates by 25 basis points or 50 basis points in February. Previously, market doves had bet that the central bank would significantly cut interest rates by 75 basis points this week, but the result disappointed them.
Karen Silk, assistant to the President of the Reserve Bank of New Zealand, stated that the central bank is not considering a 75 basis point rate cut as there is still work to be done to reduce domestic inflation.
Driven by a sharp decline in trade inflation (which the Reserve Bank of New Zealand expects to rebound to historical averages), overall inflation slowed to 2.2% in the September quarter, returning to the target range of 1% -3%. Non trade inflation (mainly domestic price pressure) remains at a high level of 4.9%.
Silk said, "If we go all the way back to neutrality now, it will create an additional risk that domestic inflation cannot be reduced. We must ensure that core inflation can also continue to return to the target midpoint
On Wednesday, the Reserve Bank of New Zealand lowered its cash rate by 50 basis points to 4.25%, a 125 basis point cut in just four months. The vast majority of economists predict a 50 basis point interest rate cut, but the market expects a probability of a 75 basis point cut to be around 40%.
This has led the market to lower the possibility of another 50 basis points rate cut in February to 32%, but New Zealand Federal Reserve Chairman Adrian Orr sounds open to this measure.
Silk stated that the central bank's interest rate forecast did not indicate a 25 or 50 basis point rate cut, but policy makers will discuss the pros and cons of these two options in February.
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