New Zealand Inflation Eases, Opening Path for Big Rate Cuts

SYDNEY—New Zealand’s inflation rate returned to within the central bank’s target band for the first time since early 2021 in the third quarter, opening a path to more supersized interest-rate cuts in coming months.

The inflation rate ran at an annual pace of 2.2% in the quarter, near the midpoint of the desired 1% to 3% target band, with some economists warning that the Reserve Bank of New Zealand must continue lowering the official cash rate at speed as a neutral policy rate is still well off in the distance.

The annual increase in inflation compares with a rise of 3.3% in the second quarter, StatsNZ said Wednesday. Inflation rose by 0.6% in quarterly terms.

The inflation data justifies the 75 basis points of cuts announced so far since August, with the RBNZ stepping up the pace of lowering the official cash rate last week by joining the Federal Reserve in slashing by 50 basis points.

Economists warn that there is a risk that inflation will undershoot the target band in coming quarters, especially if the RBNZ backs away from more significant cuts.

The official cash rate has so far fallen to 4.75% from 5.50%, with a neutral policy rate likely closer to 3.00%, according to economists.

New Zealand’s farm-rich economy has been in and out of recession for years as the RBNZ proved to be one of the more aggressive central banks globally when combating the inflation surge that emerged after the Covid-19 pandemic.

Economic activity remains flat and in need of resuscitation, especially with growth in China, its main trading partner, in a slowdown, economists said.

Higher rents were the biggest contributor to the annual inflation rate, up 4.5%. Almost a fifth of the annual increase in the consumer-price index was due to rent prices.

Prices for local authority rates and payments increased 12.2% in the 12 months to the third quarter, StatsNZ said. Prices for cigarettes and tobacco also rose sharply in line with an annual excise-tax increase.

Still, lower prices for gasoline and vegetables helped to offset rising prices, StatsNZ added.

China’s securities regulator is ramping up support for the country’s embattled equities markets, announcing measures to funnel capital into Chinese stocks.

The aim: to draw in more medium to long-term investment from major funds and insurers and steady the equities market.

The latest round of policy boosts comes as Chinese stocks start the year on a soft note, with investors reluctant to add exposure to the market amid lingering economic woes at home and worries about potential tariffs by U.S. President Trump. Sharply higher tariffs on Chinese exports would threaten what has been one of the sole bright spots for the economy over the past year.

Thursday’s announcement builds on a raft of support from regulators and the central bank, as officials vow to get the economy back on track and markets humming again.

State-owned insurers and mutual funds are expected to play a pivotal role in the process of stabilizing the stock market, financial regulators led by the China Securities Regulatory Commission and the Ministry of Finance said at a press briefing.

Insurers will be encouraged to invest 30% of their annual premiums earning from new policies into China’s A-shares market, said Xiao Yuanqi, vice minister at the National Financial Regulatory Administration.

At least 100 billion yuan, equivalent to $13.75 billion, of insurance funds will be invested in stocks in a pilot program in the first six months of the year, the regulators said. Half of that amount is due to be approved before the Lunar New Year holiday starting next week.

China’s central bank chimed in with some support for the stock market too, saying at the press conference that it will continue to lower requirements for companies to get loans for stock buybacks. It will also increase the scale of liquidity tools to support stock buyback “at the proper time.”

That comes after People’s Bank of China in October announced a program aiming to inject around 800 billion yuan into the stock market, including a relending program for financial firms to borrow from the PBOC to acquire shares.

Thursday’s news helped buoy benchmark indexes in mainland China, with insurance stocks leading the gains. The Shanghai Composite Index was up 1.0% at the midday break, extending opening gains. Among insurers, Ping An Insurance advanced 3.1% and China Pacific Insurance added 3.0%.

Kai Wang, Asia equity market strategist at Morningstar, thinks the latest moves could encourage investment in some of China’s bigger listed companies.

“Funds could end up increasing positions towards less volatile, larger domestic companies. This could end up benefiting some of the large-cap names we cover such as [Kweichow] Moutai or high-dividend stocks,” Wang said.

Shares in Moutai, China’s most valuable liquor brand, were last trading flat.

The moves build on past efforts to inject more liquidity into the market and encourage investment flows.

Earlier this month, the country’s securities regulator said it will work with PBOC to enhance the effectiveness of monetary policy tools and strengthen market-stabilization mechanisms. That followed a slew of other measures introduced last year, including the relaxation of investment restrictions to draw in more foreign participation in the A-share market.

So far, the measures have had some positive effects on equities, but analysts say more stimulus is needed to revive investor confidence in the economy.

Prior enthusiasm for support measures has hardly been enduring, with confidence easily shaken by weak economic data or disappointment over a lack of details on stimulus pledges. It remains to be seen how long the latest market cheer will last.

Mainland markets will be closed for the Lunar New Year holiday from Jan. 28 to Feb. 4.

New Zealand Inflation Eases, Opening Path for Big Rate Cuts

The inflation rate ran at an annual pace of 2.2% in the quarter compared with a rise of 3.3% in the second quarter

The latest round of policy boosts comes as stocks start the year on a soft note