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Reserve Bank of New Zealand Shocks Markets with Hefty 50 Basis Points Rate Cut

New Zealand’s central bank shocked markets on Wednesday by paring the official cash rate (OCR) by an even bigger-than-expected 50 basis points and looked set to keep policy lower for longer in the face of rising financial risks.

The Reserve Bank of New Zealand’s record dip of 1% sent the kiwi greenback plunging to depths last seen in early 2016 and drove bond yields to all-time lows.

Markets wagered even additional cuts can be needed as central banks worldwide attempt desperately to go off a deeper slowdown.

The aggressive step comes days after the Trump management named China, a currency controller in a tense escalation of the Sino-U.S. trade spat.

The central bank decreased its cash rate by 25 basis points (bps) in May as global trade frictions overshadowed the growth scope. Economists surveyed by a news agency had predicted policymakers would reduce rates again this week by 1 / 4 of a percentage level.

The New Zealand greenback plunged 1.7% to $0.6416, and yields on 10-year bonds dipped 18 basis points to 1.15%. Two-year yields sank to 0.81% as traders priced in at least yet another rate reduction.

The RBNZ itself estimated around a 1-in-3 chance of an easing by year-end and noticed no chance of a spike until late 2021, a lower for more extended scope further recently followed by the Reserve Bank of Australia.

New Zealand’s measure follows rate cuts by global policymakers who’ve been compelled to inject more stimulus as worries grow over the broadening byproduct of the U.S.-China trade dispute on the global economy.

Events this week rang more bells as the trade conflict took a flip for the worse after the US labeled China, a currency controller for the first time since 1994.

Richard Alberty

By Richard Alberty

Richard is one of the state's well-known business journalist having decades of experience in business reporting. He brings that experience in FBI Market News and leads the US Market Column. Richard provides sharp and insightful analysis of the market to readers

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