New Zealand's Central Bank Delivers Dovish Policy Update, Reinforcing Currency Sell-Off, Says Mitsubishi UFG

06:57 AM EDT, 10/08/2025 (MT Newswires) -- The worst performing G10 currency overnight Tuesday was the New Zealand dollar (NZD), which has weakened by around 1.0% against the US dollar (USD), said MUFG.

The sell-off for the kiwi since the summer has been reinforced overnight by the Reserve Bank of New Zealand's decision to deliver a larger 50bps rate cut, stated MUFG. It has lowered the RBNZ's key policy rate to 2.50% and has taken cumulative rate cuts up to three percentage points during the current easing cycle.

The RBNZ has been the most aggressive G10 central bank in cutting rates, wrote the bank in a note to clients. The New Zealand rate market had moved to price in around 36bps of cuts ahead of this week's policy meeting, highlighting that market participants had been weighing up whether the RBNZ would stick to 25bps rate cuts or deliver a larger 50bps cut.

The RBNZ's decision to deliver a larger rate cut this week reflected greater-than-expected spare capacity in New Zealand's economy and increased downside risks to the medium-term outlook for growth and inflation, added the bank. The update rate guidance also left the door open to further rate cuts as the policy rate moves into more stimulative territory.

The RBNZ stated it "remains open to further reductions in the OCR as required" putting a dampener on expectations that this week's larger rate cut would limit room for further cuts this year. Due to economic slack in the economy, inflation is expected to fall back towards the middle of the RBNZ's target band between 1-3% by next year, according to MUFG.

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