The Reserve Bank of New Zealand surprised markets this morning by not only cutting interest rates by 25 basis points, but also reporting that a 50 basis point cut was under serious discussion. The
justified the move by saying that the economy had cooled more than expected recently and that it was basing its assessment of inflation more on expectations, which had already returned to the middle of the target range of 1-3%, Commerzbank FX strategist Volkmar Baur notes. decision to support the Kiwi in the medium term “Inflation itself is still too high, but also on the right track. The central bank compared the situation of a weaker economy and falling inflation with other G10 countries, saying that New Zealand was more comparable to countries that had already started to cut interest rates.” “As noted yesterday, the market had been expecting a cut, while analysts generally tended to believe that the central bank would wait.
. This should support the Kiwi in the medium term.”