07:03 AM EST, 11/27/2024 (MT Newswires) -- The Reserve Bank of New Zealand (RBNZ) cut its key interest rate by 50bps overnight Tuesday, as expected, said Commerzbank.

Nevertheless, the New Zealand dollar (NZD) gained versus the US dollar (USD), wrote the bank in a note to clients. This is because financial markets had already fully priced in this move; and, even before this week's meeting, foreign exchange traders were expecting further interest rate cuts in the coming sessions.

These expectations were also confirmed, stated Commerzbank. Governor Adrian Orr said that a further 50bps move would follow if the economy develops as expected.

However, two points in the RBNZ's forecasts made markets sit up and take notice, according to the bank. Firstly, the RBNZ expects an average key interest rate of 3.83% in Q1 2025 in its forecasts. This would imply only a 40bps move in February and so indirectly signals that the risk is seen as being more in the direction of a smaller interest rate move.

Secondly, the RBNZ sees inflation rising again in the second half of the year. Particularly when coupled with the expected improvement in the economy, there is, as such, a risk that the RBNZ will do less than markets are currently still expecting.

At the moment, markets see a 50% chance that the RBNZ will lower its key interest rate by a total of 75bps in the first half of the year, added Commerzbank. However, the RBNZ's forecasts point more towards a total of 50bps and an end to the cycle of interest rate cuts.

The bank still predicts 75bps in the first half of the year and as such a somewhat weaker NZD over the coming months. However, while Commerzbank previously saw more of a risk that the RBNZ would do even more, it now seems more balanced.