The Reserve Bank of New Zealand says it is now more likely to lower interest rates than raise them, a dovish statement that led to a plunge in both the Australian and New Zealand dollars.
The RBNZ on Wednesday left interest rates unchanged at 1.75 per cent but said that given weaker global economic conditions and reduced domestic spending, "the more likely direction of our next OCR [official cash rate] move is down".
"The global economic outlook has continued to weaken, in particular amongst some of our key trading partners including Australia, Europe, and China," the RBNZ said.
"This weaker outlook has prompted central banks to ease their expected monetary policy stances, placing upward pressure on the New Zealand dollar."
The New Zealand dollar plunged more than a percentage point on the news and the Aussie dropped 0.3 per cent.
At 1245 AEDT the kiwi was buying 68.21 US cents and the Aussie was buying 71.16.
Westpac chief economist Dominick Stephens called the change of stance very surprising, "because the economic situation has not changed much since the RBNZ's last missive in February".
He said that perhaps the actions of other central banks had triggered the change, with the RBNZ trying to avoid a lift in the exchange rate.
Kiwibank senior economist Jeremy Couchman said the bank now expects a 25 basis rate cut in May, followed by another cut in August, "largely depending on the performance of the currency".
