The Reserve Bank of New Zealand (RBNZ) surprised financial markets by slashing its benchmark interest rate by 50 basis points to 2.5% amid concerns over a sluggish economy.

This unexpected move, which sent the New Zealand dollar and interest rate swaps tumbling, suggests further easing might be on its way to fend off global economic headwinds.

The decision is likely to bolster Prime Minister Luxon's government, which has faced criticism over the slow economic recovery, and comes as politicians grapple with low business confidence and rising living costs.

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