The Reserve Bank of New Zealand announced on Wednesday (February 19) that it will significantly lower its official overnight lending rate (OCR) by 50 basis points to 3.75%, and hinted that it will continue to relax monetary policy in the future to stimulate the economy. This decision is in line with market expectations, with 32 out of 33 economists predicting this interest rate cut.

The economic outlook is consistent with inflation, and there is still room for interest rate cuts

The Reserve Bank of New Zealand stated in its policy statement that the economic outlook is aligned with its inflation target, providing confidence for continued interest rate cuts. The central bank expects interest rates to drop to 3.45% by June and to reach 3.10% by the end of the year, lower than the previously predicted 3.2%. Since August last year, the Reserve Bank of New Zealand has cumulatively cut interest rates by 175 basis points, providing policymakers with further room for easing inflation.

Global uncertainty increases, and the Reserve Bank of New Zealand is determined to remain firm

Despite global inflation risks and uncertainties such as Trump's re-election as US President, the Reserve Bank of New Zealand still cut interest rates by 50 basis points, demonstrating its determination to revitalize the economy. The central bank stated that lowering interest rates will encourage consumption, although the uncertainty of the global economy may put pressure on corporate investment decisions.

Inflation rate fluctuations, future challenges still exist

In recent months, the inflation rate in New Zealand has decreased to 2.2%, but the central bank expects that a period of turbulence in the future may cause the inflation rate to rise to 2.7% in the third quarter and then fall back again. The Reserve Bank of New Zealand has stated that it is fully capable of maintaining price stability in the medium term and responding to future inflation shocks, but the uncertainty of global tariff policies poses some risks to the economy.

The New Zealand dollar has bottomed out and rebounded, and the market expects another interest rate cut in April

With the decision of the Reserve Bank of New Zealand to cut interest rates, the New Zealand dollar exchange rate immediately fell, dropping 0.46% to 0.5677, reaching a new low in nearly three trading days. The market generally expects the Reserve Bank of New Zealand to cut interest rates by another 25 basis points in April and further before the end of the year. The interest rate futures market shows a 93% chance of easing policies in April, and it is expected that the year-end interest rate will approach 3.0%, which is seen as the bottom of this easing cycle. But after the speech by Reserve Bank of New Zealand President Orr, the New Zealand dollar reversed its downward trend and is currently trading around 0.5716, up about 0.23%. Reserve Bank of New Zealand President Orr released a series of key messages at a press conference, clarifying the direction of future monetary policy and expressing a cautiously optimistic attitude towards the economic outlook.

The pace of interest rate cuts is steadily advancing, and the neutral interest rate target is clear

Orr pointed out that New Zealand's economic activity is recovering, and the economic outlook is consistent with the inflation target in the medium term, which provides confidence for continuing to lower the official cash rate (OCR). However, there is still significant idle capacity in the economy, and domestic inflationary pressure is expected to continue to ease. He expects that employment growth will rebound in the second half of the year with the growth of domestic activities.

Orr stated that the Reserve Bank of New Zealand plans to implement two 25 basis point interest rate adjustments and expects a cumulative 50 basis point reduction by mid year (around July). He emphasized that the 3.75% interest rate level is the high-end of the neutral interest rate range, and interest rates will continue to decline in the future, but there will be no rush to adjust to a level like 3%, as domestic inflation remains high.

This expectation may provide some support for the New Zealand dollar.

The New Zealand dollar exchange rate is close to fair value, supporting economic growth

Orr believes that the exchange rate of the New Zealand dollar against the US dollar is close to fair value and has played a positive role in driving revenue growth. He expects this trend to continue this year as the factors supporting these prices still exist. In addition, he mentioned that if interest rates can be adjusted to neutral levels and remain stable, GDP and nominal GDP growth will approach potential levels, and exchange rates will also remain near fair value.

This means that there is limited room for a significant depreciation of the New Zealand dollar in the short term. This statement may alleviate market concerns about the excessive depreciation of the New Zealand dollar to some extent.

Global uncertainty poses risks, and the Reserve Bank of New Zealand is prepared

Orr pointed out that recent risks include a slowdown in GDP growth, while long-term risks involve US tariff policies, which may slow down global economic growth. He emphasized that the Reserve Bank of New Zealand is prepared to respond to any potential shocks and will take action if necessary to support the economy.

Orr admitted that the pressure of living costs has not yet ended, and domestic inflation or non tradable goods inflation remains high. He stated that the Reserve Bank of New Zealand is confident in keeping inflation within its target range in the medium term while continuing to drive economic growth.

Summary: Economic recovery is in sight, and the pace of interest rate cuts is steadily advancing

Overall, the Reserve Bank of New Zealand's interest rate cuts are aimed at providing impetus to the struggling economy, and despite global uncertainty, the central bank has shown firm determination.

The statement by New Zealand Federal Reserve Chairman Orr conveys a cautious and optimistic attitude towards economic recovery. Despite facing global uncertainty and domestic inflationary pressures, the Reserve Bank of New Zealand will continue to support economic recovery through measures such as interest rate cuts, while maintaining vigilance against potential risks. In the future, as the economy gradually recovers, the policy adjustments of the Reserve Bank of New Zealand will be more flexible to ensure stable economic growth.