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    RBNZ 'cut to the chase' by 25bps


    RBNZ cut interest rates today for the first time in 4 years whilst leaving the door open to further cuts, signallising the beginning of an easing cycle, to send NZD lower across the board


    Greame Wheeler's full statement: Official Cash Rate reduced to 3.25 percent
    RBNZ Monetary Polic Statement: View PDF

    Summary of Greame Wheeler's statement
    - The fall in export commodity prices that began in mid-2014 is proving more pronounced. 
    - The outlook for dairy prices and recent rises in petrol prices will slow income and demand growth and increase risk delaying return of inflation to the mid-point
    - Inflation has been low due to falling import prices and the strong growth in the economy’s supply potential
    - Wage inflation and inflation expectations have been subdued
    - Exchange rate has declined from its recent peak in April, but remains overvalued
    - A further significant downward adjustment [for the exchange rate] is justified
    - Lower exchange rate required in light of lower forecast for current account balance
    - Increased supply required to address rising Auckland house prices
    We expect further easing may be appropriate. This will depend on the emerging data

    In April's statement they stated that "Monetary policy will focus on the medium-term trend in inflation and "The timing of future adjustments in the OCR will depend on how inflationary pressures evolve in both the non-traded and traded sectors". The two charts above pretty much sum up why RBNZ cut by 25 bps today, as medium term trends of both non-tradeables and tradeable, along with projected inflation are both declining. 

    Whilst I did not expect a cut today it is goods to see a Central Bank try to get ahead of the curve. Now back to the RBA...

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