As Australians await stronger signals that a rates reprieve is imminent here, across the Tasman, New Zealand’s central bank has again taken the knife to its key interest rate.

The Reserve Bank of New Zealand (RBNZ) cut the official cash rate to 4.75 per cent, down 50 basis points — its second easing of policy in as many meetings.

“Economic activity in New Zealand is subdued, in part due to restrictive monetary policy,” an RBNZ release noted.

“Business investment and consumer spending have been weak, and employment conditions continue to soften. Low productivity growth is also constraining activity.”

The magnitude of the move was widely anticipated, with market expectations firming over the past week, and it appears the central bank wasn’t prepared to disappoint with a less aggressive move.

“The [Monetary Policy] Committee discussed the respective benefits of a 25-basis point versus a 50-basis point cut in the [official cash rate],” the release read.

“They agreed that a 50-basis point cut at this time is most consistent with the Committee’s mandate of maintaining low and stable inflation, while seeking to avoid unnecessary instability in output, employment, interest rates, and the exchange rate.

“The Committee noted that current short-term market pricing is consistent with this decision.”

Facing an economy that has already moved in and out of technical recession over the past year, and a deteriorating jobs market, some economists are forecasting further cuts of the same size at coming meetings.

“We think it will end up cutting rates more aggressively than most are predicting,” Capital Economics economist Abhijit Surya wrote, forecasting “a couple more” 50 basis point cuts in the next few months.

While at its August meeting, the RBNZ’s rate-setting committee remained wary that prices could fall more slowly than they had risen, in October it appeared more confident that inflation was heading firmly downwards towards its 1-to-3 per cent target band.

“The New Zealand economy is now in a position of excess capacity, encouraging price- and wage-setting to adjust to a low-inflation economy. Lower import prices have assisted the disinflation,” the RBNZ statement read.

RBNZ ‘flip-flops’ as economic conditions deteriorate 

The acceleration of the RBNZ’s policy easing efforts has marked a turnaround from its approach as late as May, when it discussed the case for further rate increases.

“It was definitely a flip-flop between May and August,” ANZ New Zealand chief economist Sharon Zollner told The Business.

Ms Zollner said economists and market participants were “startled” by the central bank’s previous forecasts, which implied a high chance of further rate hikes, before a change of tone in July.

“Certainly we’d be more inclined to say that May was the mistake, rather than the first cut in August.”

As for the growth outlook, Ms Zollner said New Zealand would face a “triple-dip” recession if the next quarterly growth figures come in negative, but argued it wasn’t as bad as the 1990s recession or the 2008 global financial crisis, on indicators such as unemployment, mortgage defaults or insolvencies.

“Nonetheless, it has absolutely it has hurt, and it has been the cost of getting inflation down.”

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The economic fallout in New Zealand has ramifications for Australia, with Kiwis increasingly heading here in search of greener economic pastures.

“If you are footloose and fancy free and you lose your job [in New Zealand], then it does make an awful lot of sense to try your luck over the ditch,” Ms Zollner conceded, noting the surprising strength of Australia’s employment market.

“We’ve got some fiscal consolidation going on and quite a number of job losses in the core public service at the moment, which hasn’t really shown up in the numbers just yet…

“I think there’s a very widespread expectation that unemployment is going to rise again and will likely continue to do so for some time yet, given it lags the real economy.”