The New Zealand economy is experiencing a marked slowdown, led primarily by the household sector. The outlook for the global economy has deteriorated further in the wake of continued financial market turmoil. In addition, the New Zealand business sector is coming under pressure from both rising costs and falling demand. In fact in the past few months data has shown that some growth in home values has cooled to its slowest pace on records going back two years and overall sales have dropped to a seven-year low.

Medium-term inflation pressures are expected to ease, as the RBNZ lowered their interest rates by 50 basis points, and it is therefore appropriate for the RBNZ to move towards a less restrictive monetary policy. Although the interest rate reduction has been brought forward, the overall expected decline has remained unchanged. Looking ahead, the scale and timing of further interest rate reductions will depend on signs of declining inflation pressures and exchange rate adjustments.