New Zealand Equity Monthly October 2024

By Tim O’Loan, Research Analyst, New Zealand Equities

Market shows promising reaction to central bank’s dovish pivot

After a long period of elevated interest rates, New Zealand’s equity market now stands at the beginning of a rate cutting cycle, with the Reserve Bank of New Zealand (RBNZ) having lowered the Official Cash Rate (OCR) at its last two  monetary policy meetings. After hiking the OCR to 5.5% in May 2023 and then standing pat for over a year in order to  curb inflation, the RBNZ started the cutting cycle with a 25-basis point reduction to 5.25% in August 2024. That was followed by a more substantial 50-basis point cut in October 2024, bringing the OCR to its current level of 4.75%. The RBNZ’s shift to a more dovish stance already appears to have buoyed New Zealand’s equities at this early stage of the  cycle, with examples including signs of strength in the retirement village and rental sectors. The market as a whole has been delivering strong returns of late, with the S&P/NZX 50 Index of New Zealand’s largest companies by market  capitalisation having risen by approximately 16% towards the end of October 2024 compared to about 12 months  before. At the same time, data show that New Zealand’s consumers price index (CPI) eased to an annual rate of 2.2% in the September 2024 quarter¹, putting it only slightly above the mid-point of the RBNZ’s target range of 1-3%.

Lower interest rates and softer CPI seen favouring equities