On Wednesday, the Reserve Bank of New Zealand (RBNZ) cut the official cash rate from 5.5 per cent to 5.25 per cent.
The decision was a surprise to many economists, given the RBNZ warned as recently as May that it may not cut rates until August 2025.
However, fresh data releases in the three months since - including a fall in headline CPI inflation to 3.3 per cent - has prompted RBNZ governor Adrian Orr to move.
At the core of the NZRB's decision was NZ's flatlining economy, including a double-dip recession.
Gross domestic product per capita has fallen in each of the past six quarters for a total of around four per cent.
Mr Orr said, "The weakening in domestic economic activity ... has become more pronounced and broad-based".
"Headline inflation has declined, and business inflation expectations have returned to around two per cent at medium-and longer-term horizons," he said.
"A broad range of high-frequency indicators point to a material weakening in domestic economic activity in recent months.
"These include various survey measures of business activity, electronic card transactions, vehicle traffic, house sales, filled jobs, and job vacancies.
"These indicators collectively provide a consistent signal that the economy contracted in recent months."
He also pointed to a number of further risks to the Kiwi economy: below-trend global growth including China, volatility in global asset markets, and risks to the trade and geopolitical environment.
Unemployment is at 4.6 per cent and rising, tipped to hit five per cent by the end of the year.
Prime Minister Chris Luxon claimed credit for the cut, which will delight mortgage-holders desperate for relief.
"Mortgage relief is on the way because we have delivered lower inflation, with the first OCR cut since March 2020 today," he posted on social media.
Mortgage relief is on the way because we have delivered lower inflation, with the first OCR cut since March 2020 today.— Christopher Luxon (@chrisluxonmp) August 14, 2024
The cut is the first since March 2020, when the OCR was lowered to the emergency level of 0.25 when it sat through to late 2021.
As cost pressures mounted due to pandemic-era closed borders and global supply chain shocks, the RBNZ then raised rates, arriving at 5.5 per cent in May 2023, where it has sat prior to this week.
Speaking prior to the decision, ANZ chief economist Sharon Zollner said, "People are really struggling, the economy is doing it pretty tough".
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