Cutting to the chase

By Greg Smith, Head of Retail at Devon Funds

The RBNZ surprised many market participants by coming through with a 25bps rate cut. We have said for several months, including our 2024 predictions at the start of the year, that central bank would need to go earlier that most were expecting, and be driven by economic necessity. This appears to have played out.

It was only a few months ago that at least one commercial bank and many market participants, were calling for more hikes this year. The RBNZ wasn’t forecasting any rate cuts until the second half of 2025.  After being one of the most hawkish central banks around for much of the past few years, the RBNZ have even beaten the Fed, the world’s largest central bank, to the punch.

A tip of the hat to Adrian Orr and the RBNZ, who are trying to get ahead of further weakness in the economy, which they acknowledge has become more pronounced, and broad based, since the last Monetary Policy Statement In May. They are perfectly entitled to do that. There are a huge number of moving parts in the economy and things have clearly deteriorated in the last few months – we are looking at going into recession again in the fourth quarter, so better going now to limit the extent of the downturn.