Reserve Bank Of New Zealand Likely To Deliver 50bps Interest Rate Cut

The Reserve Bank of New Zealand (RBNZ) is going to announce its decision on interest rates on Wednesday morning with economists suggesting that the cut could reach 50 basis points in order to support the economy.

In China, officials shared details regarding the awaited stimulus plan, while in Australia the Reserve Bank of Australia (RBA) minutes showed that policymakers discussed both increasing and reducing interest rates in the future.

RBNZ Interest Rate Decision

The RBNZ governing board will convene on Wednesday to decide on the level of borrowing costs. Most economists suggest that New Zealand’s central bank will cut interest rates but do not agree on the reduction’s size.

The New Zealand Institute of Economic Research (NZIER) report shows that its so-called Shadow Board remains divided over the cut’s extent.  One out of two members is in favour of a 50 basis points cut as the weakness of the economy increases excess capacity, adding that consumer price inflation figures are dropping as well as inflation expectations. The rest of the NZIER Shadow Board members support a smaller 25 basis points interest rate cut, suggesting that there are risks when it comes to inflation control, especially the non-tradable part of it.

ING analysts wrote in a report published on October 4th that “we expect a 50bp cut to 4.75% at the October meeting, which is in line with consensus, but more dovish than the RBNZ projections, which included 50bp of total easing in 4Q24 (the next meeting is in November).” The report notes that “the loss of economic momentum is still adding pressure to bring rates rapidly close to neutral.” The Dutch bank’s economists suggest that “from an FX perspective, we expect a negative impact on NZD from a 50bp RBNZ cut.”

ECB’s Villeroy Says Rate Cut Possible In October

European Central Bank (ECB) Governing Council policymaker and French central bank governor François Villeroy de Galhau suggested that the ECB will probably cut interest rates in its October 17th meeting. Villeroy said that the eurozone’s policymakers “pay attention to the opposite risk, of undershooting our objective due to weak growth and a restrictive monetary policy for too long.”

The French banker mentioned that economic growth is weak, bringing the risk that inflation will undershoot the ECB’s 2% target. Villeroy noted that “if we are next year sustainably at 2% inflation, and with still a sluggish growth outlook in Europe, there won’t be any reason for our monetary policy to remain restrictive, and our rates to be above the neutral rate of interest.”

China Updates On Stimulus Plan

The National Development and Reform Commission (NDRC), China’s state planner, noted “the downward pressure on China's economy is increasing.” In an anticipated press conference, the NDRC board outlined a plan of actions to strengthen the country’s economy that has struggled to reach its pre-pandemic growth figures. NDRC officials announced that new bonds will be issued to support regional economic growth while details on a 100-billion yuan investment plan will be published by the end of October.

However, the Hang Seng Index lost momentum earlier in the day as investors found the announcements underwhelming, noting the absence of specific figures.

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