WELLINGTON (Reuters) – New Zealand's central bank slammed markets Wednesday by cutting the official cash rate (OCR) by more than expected 50 basis points to a record low 1.00% and looking to keep the policy lower in the face of growing financial risks.
The Reserve Bank of New Zealand (RBNZ) surprise move sent the dollar to a 10-month low, and comes days after the Trump administration labeled China as a currency manipulator in a dramatic escalation of the Sino-American trade war.
"The Monetary Policy Committee agreed that a lower OCR is needed to continue to meet its employment and inflation targets," RBNZ's Monetary Policy Committee said in a statement accompanying the interest rate decision. [1
The central bank lowered its cash rate by 25 basis points (bps) in May as international trade frictions overshadowed the growth outlook, and economists polled by Reuters had predicted that policy makers would cut interest rates again this week by a quarter percentage point.
The New Zealand dollar fell 1% to $ 0.6443, a 10-month low, and bond yields fell after the interest rate decision as markets priced for further easing, possibly as early as next month.
RBNZ's forecasts published with the statement show that a new cut is possible at the end of the year that would take OCR below 1%.
New Zealand's move follows interest rate cuts from global policy makers who have been forced to inject more stimulus as fears grow over the widening decline in the US-China trade conflict over the global economy.
And the events this week rang several alarm bells for policy makers as the trade war took a dramatic turn on Monday after the US government marked China as a currency manipulator for the first time since 1994.
The transformation of the Sino-American trade conflict into a currency war leaving open economies such as New Zealand highly exposed and exposed to global pressure.
Last week, the US central bank lowered interest rates for the first time in a decade, and the Reserve Bank of Australia eased its policy in both June and July.
Surprisingly high employment rates in New Zealand this week tempered some of the pessimism, although leading indicators suggest that growth will remain under pressure when businesses face tough times.  New Zealand's business outlook hit an 11-month low in July and consumer confidence dropped. And while GDP growth picked up slightly in the first quarter, a largely weak set of global factory activity, trade and the company's earnings reports point to a softening outlook.
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