Hawkesby told the Bank of Japan's Institute for Monetary and Economic Studies that the new monetary policy committee, which has replaced the governor as the sole decision-maker, had considered a range of scenarios in May before deciding to cut the official cash rate by 25 basis points to a record low of 1.5 per cent.
Those scenarios, assessed over a seven-day period leading up to the official announcement on May 8, ranged from holding the OCR steady to cutting it by 75 basis points over 12 months.
If rates had remained unchanged, the projections suggested that it would have taken a number of years for inflation to return to target, and employment would have fallen below the maximum sustainable level, Hawkesby said.
If it had lowered the OCR by about 75 basis points over the next 12 months, the projections suggested it would result in a situation where both inflation and employment would be overshooting their targets, he said.
Tim Kelleher, head of institutional foreign exchange sales at ASB Bank, says the market was blind-sided by the release of Hawkesby's remarks, especially because they were delivered on May 30.
"It was quite strange, we thought. Our view on it is maybe they were trying to dampen down expectations of more than one rate cut," Kelleher says, noting that the speech hadn't been flagged as the central bank normally does with important speeches.
Driving the US dollar lower, and therefore driving other currencies higher against it, Federal Reserve chair Jerome Powell said in a speech in Chicago that the Fed is watching economic developments, including President Donald Trump's threat to impose tariffs on all Mexican imports.
The Fed is ready to keep the near-record US expansion going, including cutting interest rates, Powell said in prepared remarks.
"We are closely monitoring the implications of these developments for the US economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labour market and inflation near our symmetric 2 per cent objective."
Kelleher says it will be a matter of watching developments and the data. "I don't think there's anything revolutionary" about a Fed chair saying he would act to protect the US economy.
"At least they've got some ammo. They wouldn't have any ammo if they hadn't been tightening."
The Fed Funds rate is currently targeting 2.25-2.5 per cent after lifting that target four times in 2018. Financial markets have priced in two cuts from the Fed by the end of the year.
The New Zealand dollar was trading at 94.74 Australian cents from 94.56, at 52.18 British pence from 52.04, at 58.87 euro cents from 58.72, at 71.65 yen from 71.48 and at 4.5825 Chinese yuan from 4.5684.
The New Zealand two-year swap rate edged down to 1.3880 per cent from 1.4081 yesterday while the 10-year swap rate nudged up to 1.9000 per cent from 1.8950.
