RBNZ Cuts Interest Rates, UK CPI Inflation Surges In January

The Reserve Bank of New Zealand (RBNZ) decided to cut its benchmark interest rate by 50 basis points (bps) as it was expected by market analysts. The post meeting statement showed that the RBNZ could consider further cuts during this year.

In the UK, January’s CPI report revealed that headline inflation surged, hitting a 10-month high. Commenting on the inflation report, economists suggested that the figure reflected one-off factors and would likely not affect the Bank of England’s (BoE) monetary policy.

RBNZ Cuts Interest Rates By 50 Bps

There were no surprises with the RBNZ’s interest rate decision as its governing board said that it would reduce the Official Cash Rate (OCR) by 50 bps, in line with market expectations. This reduction leaves the OCR at 3.75%. The RBNZ has now cut rates by 175 basis points since August, trying to boost the country's economy as it recovers from a deep recession.

The central bank’s post-meeting statement mentioned that “if economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025.” Governor Adrian Orr said: "We are looking at lowering the official cash rate a little bit quicker than what we projected back in November...We have our projection of the OCR being around 3% by year end."

Commenting on the New Zealand economy, the RBNZ’s Governor noted that economic activity remains subdued, adding that he expected the economy to recover during this year.

UK CPI Inflation Soars In January

A report by the Office for National Statistics (ONS) showed that the UK’s CPI inflation rose by 3.0% on an annualised basis in January. The figure surpassed market expectations. Core inflation surged by 3.7% on a yearly basis, up from 3.2% in December. It should be noted that services inflation, a key metric for the BoE, rose by 5.0% from 4.4% in the previous month.

The National Institute of Economic and Social Research (NIESR), a think tank based in the UK, said that “this elevated figure is only transitory due to base effects and is expected to fall again in the coming months. We think CPI will average 2.5% in 2025 before falling to the BoE’s 2% target from 2026 onwards. We therefore anticipate one more rate cut in the second half of the year.”

Commenting on the inflation report, the EY Item Club said that “January’s higher reading for services inflation was widely anticipated, and it’s unlikely the MPC [monetary policy committee] will have seen much in today’s release to concern them. We expect the MPC will continue with its ‘cut-hold’ approach to loosening policy for now, with the next rate cut likely to come at its May meeting.”

Canadian CPI Inflation Rises In January

Canada's consumer price index rose to 1.9% in January, Statistics Canada reported on Tuesday. Economists at the Canadian Chamber of Commerce noted: “Core inflation still shows persistent underlying pressures, and volatile elements like energy will continue to swing the numbers in the months ahead. Even so, stronger inflation amid retailers' price discounts and budding economic activity in the fourth quarter will likely give the Bank of Canada some confidence to hold interest rates steady at its March meeting.”

ECB's Holzmann: March Cut To Depend On Data

Robert Holzmann, the current Governor of Austria's central bank and member of the European Central Bank’s (ECB) board said that services and core inflation remain sources of concern for policymakers.

Holzmann said that interest rate cuts cannot replace economic strategy, adding that the March rate decision would depend on data. As the ECB unwinds its monetary policy, the Austrian banker noted that it would be harder to cut rates as the benchmark interest rate approaches neutral.

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