RBNZ Cuts Interest Rates By 50 Bps, Signals New Cut In February

The Reserve Bank of New Zealand (RBNZ) cut its benchmark interest rate by 50 basis points, a move that was anticipated by most economists.

In other news, Deutsche Bank analysts suggested that if Donald Trump’s tariffs were fully implemented, US core PCE inflation could increase from 2.6% to 3.7% in 2025.

RBNZ Interest Rate Decision

RBNZ cut its official cash rate (OCR) by 50 basis points (bps) to 4.25% in line with analysts’ expectations. This is the lowest interest rate level recorded since November 2022.

“Annual consumer price inflation has declined and is now close to the midpoint of the Monetary Policy Committee's 1 to 3 percent target band. Inflation expectations are also close to target and core inflation is converging to the midpoint,” the post-meeting statement noted.

In a press conference right after the policymakers’ meeting, RBNZ’s Governor Adrian Orr told reporters that “even with 50 basis points, we remain somewhat restrictive. There's a significant output gap, significant spare capacity so 50 (bps) felt right." Orr also said that the central bank’s projections are consistent with a 50 bps cut in February, depending on activity and data that is going to be collected in the meantime. However, some analysts suggested that, while they could pencil in a 25 bps cut, it would be too early to comment on a larger potential move as there could be a lot of changes in the next three months.

Tokyo CPI October Report On Friday

On Friday, the Japanese Statistics Bureau will release the Tokyo CPI inflation data for the month of October. The consensus among economists is that Tokyo core CPI could reach 2.0% on an annualised basis, rising from the 1.8% figure recorded in September. The Tokyo CPI index is widely considered by economists as a leading indicator of Japan’s overall CPI inflation.

One out of two economists polled by Reuters earlier in the month expect another rate hike in December. The Bank of Japan (BoJ) Governor Kazuo Ueda had mentioned some days ago that the outcome of the BoJ’s next monetary policy meeting on December 18th-19th would be "unpredictable."

Fed's Kashkari Says December Rate Cut Could Be Reasonable

Commenting on monetary policy matters, Federal Reserve Bank of Minneapolis President Neel Kashkari told Bloomberg reporters that “right now, knowing what I know today, still considering a 25-basis-point cut in December - it's a reasonable debate for us to have.”

Kashkari who belongs to the hawkish Fed policymakers’ camp said he was confident that inflation is “gently trending down, and right now the labor market remains strong.” The Federal Open Market Committee (FOMC) will convene in mid-December with the CME FedWatch Tool giving a 66.3% probability for a 25 bps rate cut.

Canada & Mexico React To Trump Tariff Comments

Donald Trump’s comments put markets in turmoil with Canada and Mexico replying to the tariff threats straight away. In Canada, the Bank of Canada (BoC) deputy governor Rhys Mendes said that “what happens in the U.S. has a big impact on us, and something like this would clearly have an impact on both economies.” 

The BoC is expected to update its economic forecasts on January 29th when the first monetary policy decision for 2025 is expected. Mendes stressed that “at this stage, we'll be watching, and once we actually see the specifics of the policies that are enacted, we will start to incorporate those into our outlook.”

In Mexico, President Claudia Sheinbaum mentioned that dialogue with the US side and the new President would be needed. “One tariff will follow another and so on, until we put our common businesses at risk. "What sense is there?”, said Mexico’s first citizen. According to a Reuters reporter, “Mexico is the United States' top trade partner as of September, representing 15.8% of total trade, followed by Canada at 13.9%.”

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