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The New Zealand Dollar has tanked on a split vote at the Reserve Bank of New Zealand (RBNZ).
The RBNZ cut the Official Cash Rate (OCR) by 25 basis points to 3.0% on Wednesday, however, two members of the board dissented from their four colleagues to vote for a 50bp cut.
This is the first such vote split in RBNZ history, and signals a clear belief by decision makers that more work must be done to get interest rates lower in order to support the economy.
The market went into the decision thinking this could be the final cut, with residual risks that a further 25bp cut might be possible either late this year or early next.
In the event, the pricing for further cuts has jumped, pressuring NZ bond yields lower, as well as the domestic currency.
"Market reaction to today’s uber-dovish decision was swift. Wholesale interest rates dropped and the Kiwi plunged as the RBNZ delivered a track more than what was priced," says Jarrod Kerr, Chief Economist at Kiwi Bank.
The Pound to New Zealand Dollar exchange rate is 1.0% higher at the time of writing at 2.3123, its highest level since the April tariff day market ructions. Losses against the Euro extended a per cent to 1.9955, and the NZD/USD fell by a similar margin to 0.5832.
Above: GBP/NZD at 15-minute intervals.
"The RBNZ clearly signalled further rate cuts from here. The OCR track was massively lowered, now signalling an 80% chance of a move to 2.5%. We love to see it. This is great news for households and businesses," says Kerr.
Good news for Kiwi houselholds and exporting businesses maybe, but certainly not for domestic importers as the NZD now finds itself under significant pressure.
"The Kiwi and whole term structure of local interest rates gapped lower on the announcement," says Sharon Zollner, Chief Economist at ANZ.
"The RBNZ has come around to our big-picture view more quickly than we anticipated. Accordingly, we are bringing forward the two further cuts in our forecasts to October and November, whereas we were previously forecasting them to come in November and February," she adds.
Image courtesy of Kiwi Bank. Image shows the RBNZ has significantly lowered its own expectations for the future outlook of the OCR.