New Zealand officially DROPS interest rates – and they are much lower than what we’re paying here in Australia

New Zealand’s declining economy has forced the central bank to make a second consecutive 50 basis point interest rate cut.

And Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr isn’t done yet. He says economic conditions are so bad that he will make further cuts early next year.

The RBNZ believes New Zealand is in the midst of another technical recession.

The economy contracted 0.2 percent in the June quarter, with the RBNZ set to record a further contraction of 0.2 percent in the September quarter when its figures are released next month.

The economic gloom led to a reduction from 4.75 percent to 4.25 percent on Wednesday.

“Economic activity in New Zealand remains subdued and production remains below potential,” Orr said.

‘If economic conditions continue to develop as expected, the (RBNZ) expects to be able to further reduce the OCR early next year.’

Economists widely expected it to have fallen by 50 basis points, while some thought it might have fallen by as much as 75 basis points.

ABS chief economist Nick Tuffley said new measurements showed the OCR would fall below four percent in the first half of next year.

“As of now, we expect the RBNZ to slow the pace of easing to 25 basis points in 2025, but the risk is a further reduction of 50 basis points,” he said.

NZ has been on an economic rollercoaster ride through the pandemic.

First, it scored the highest marks for eliminating COVID-19 and avoiding initial shock.

However, supply chain shocks and the combination of government-boosted incomes and low interest rates pushed inflation to an eye-popping peak of 7.3 percent in 2021.

To curb inflation, the RBNZ raised the OCR to 5.5 percent and held it there for over a year before beginning its austerity cycle in August.

The consumer price index is back around the midpoint of its target range, last measured at 2.2 percent in the year to September.

The economy is in dire need of a boost as GDP fell by 0.2 percent over the past year.

On a per capita basis, New Zealand’s post-pandemic slump has been worse than the impact of the 2007-2008 global financial crisis.

Finance Minister Nicola Willis said the 125 basis point fall since August would leave a family with a $500,000 mortgage about $180 a fortnight better off if the bank passes on the cuts.

“The drop means many ordinary Kiwis can focus more on what matters most to them, and less on making the next mortgage payment or whether their card will be declined at the supermarket,” she said.

The OCR cut comes on the one-year anniversary of the swearing-in of Chris Luxon’s conservative coalition government.

Mr Luxon claimed that his government’s efforts to cut public spending played a major role in the interest rate cuts.

“Mortgage relief is coming because our plan supports lower inflation,” he said.

Economists point out that the sharper decline in tradable or foreign inflation, including a much lower global price for fuel, will have a bigger impact.