RBNZ chief says negative interest rates "within the realms of possibility"

Both the Australian and New Zealand dollars are falling after the huge rate cut from the RBNZ

"Our actions today demonstrate our ongoing commitment to ensure inflation increases to the mid-point of the target range, and employment remains around its maximum sustainable level", the Reserve Bank said.

However, he added the hefty 50 basis-point cut, which caught markets off-guard, reduced the possibility of having to use negative interest rates as it would stimulate the economy.

Many analysts had tipped a 25 basis-point cut. Although it held rates steady in June, it said then that "a lower OCR may be needed over time to continue to meet our objectives".

Australia's dollar slid to its lowest in a decade on speculation the nation's central bank will follow its New Zealand counterpart in delivering a bigger-than-expected interest-rate cut.

The RBNZ will publish its decision at 2 p.m.in Wellington on Wednesday along with fresh forecasts for growth, inflation and the OCR.

'Growing global trade tensions and weak business and consumer confidence have weighed on economic growth, ' he said.

The New Zealand dollar tumbled one per cent against the U.S. dollar to 64.43 United States cents - a 10-month low.

Bank Governor Adrian Orr said economic growth had slowed over the past year while economic headwinds were rising.

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"In the absence of additional monetary stimulus, employment and inflation would likely ease relative to our targets", the bank said in a statement. GDP growth is now seen as accelerating from a trough of 2 percent y/y in Q2 2019 to a peak of 3.1 percent y/y by Q3 2020 (previous peak of 3.3 percent in Q2 2020).

The Aussie fell 0.7% to $0.6711 as markets ramped up their bets that Australia would also cut rates faster and deeper than previously expected.

The morphing of the Sino-U.S. trade conflict into a currency war leaves open economies like New Zealand heavily exposed and vulnerable to global pressure.

The offshore yuan fell to 7.0815 per dollar, not far from 7.1397, the lowest since global trading in the currency began in 2010.

With the RBNZ's Governor keep holding his bearish bias towards future monetary policy, the NZD/USD pair refrains from further recovery while trading near 0.6445 at the start of Thursday's Asian session.

The Official Cash Rate (OCR) is reduced to 1.0 percent. The kiwi dollar dropped to 95.60 Australian cents from 96.50 cents immediately before the RBNZ release.

"We are in an environment where unemployment is low, we see wages are increasing and this cut will ultimately mean New Zealanders should face lower interest rates", she said. "Given the Committee's clear willingness to reduce rates, and our view that there is some further economic softness to come in the near term, we now expect another 25bp cut in November".

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