RBNZ’s Orr: Projections consistent with 50 bps in Feb depending on activity

Reserve Bank of New Zealand’s (RBNZ) Governor Adrian Orr explains the interest rate decision at a press conference following the monetary policy meeting on Wednesday.

Orr is responding to questions from the media.

Key quotes

Misnomer that our projections show slower pace of cuts.

Projections consistent with 50 bps in Feb depending on activity.

Expect more volatility in prices because of geopolitics.

Did not discuss cutting by 75 basis points.

Track leaves door open to further 50 bps in February.

There were very limited discussions of 25 bps or 75 bps.

Policy committee can meet at any time if needed.

Confident domestic inflation pressures will continue to ease.

Confident economic growth will pick up in 2025.

Expect to be around neutral by end 2025.

Nuetral is somewhere between 2.5% to 3.5%.

We can rule out rates going up in near term because of US tariffs.

We do have concerns about tariffs.

Tariffs would put upward pressure on level of prices globally.

Market reaction to RBNZ Orr’s presser

NZD/USD trims gains to trade near 0.5850 on Orr’s comments, still adding 0.35% on the day.

RBNZ FAQs

What is the Reserve Bank of New Zealand?

The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.

How does the Reserve Bank of New Zealand’s monetary policy influence the New Zealand Dollar?

The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.

Why does the Reserve Bank of New Zealand care about employment?

Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.

What is Quantitative Easing (QE)?

In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.

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