The Reserve Bank of New Zealand cut interest rates by 25 bps to 3.25% on Wednesday, as central bank officials stated that trade tensions and slowing growth has increased global risks.
The RBNZ has marked this decision as the sixth rate cut since its cycle began in 2024. The central bank also signaled its commitment to further reductions to support an economic recovery that has been clouded by US tariffs. ⁽¹⁾
Slowdown in Inflation and Economic Growth
The rate cut came due to disinflation in New Zealand, as annual inflation came in at 2.5% in Q1 2025, within the range of the RBNZ’s 1-3% target range. Core inflation and wage growth have continued their downtrend, which indicates less inflationary pressure. ⁽²⁾
The RBNZ forecasted that inflation could peak at 2.7% in 2025 before moving back downwards near 2% in 2026, which could lead to more rate cuts to support economic growth. ⁽³⁾
The RBNZ also forecasted that the Official Cash Rate could reach 2.9% by late 2025, reflecting expectations of persistent economic challenges. The economy is recovering after Q4 2024 GDP reported a 0.7%, emerging from a technical recession, but significant risks remain on growth, the RBNZ said in its May Monetary Policy Statement. ⁽⁴⁾
Elevated export prices and lower interest rates are supporting activity, but higher US tariffs and increased global uncertainty are expected to weigh on demand and investment, the central bank said. ⁽⁵⁾
“Inflation is within the target band, and the Committee is well placed to respond to domestic and international developments to maintain price stability over the medium term.” said RBNZ Governor Christian Hawkesby. ⁽⁶⁾
Rate Cut Vote Was Not Unanimous
The decision to cut on Wednesday by the Monetary Policy Committee actually went to a vote, with one of the six members voting against it. A discussion took place around keeping the Official Cash Rate (OCR) unchanged. This is only the second time an OCR decision has gone to a vote. ⁽⁷⁾
The notes for the MPC meeting said that: “In considering the merits of holding the OCR unchanged at 3.5% for this meeting, some members noted that this would allow the Committee to better assess whether increased economic policy uncertainty was having a noticeable impact on household and firm behavior.” ⁽⁸⁾
New Zealand Dollar Holds Steady
The New Zealand dollar steadied to around $0.595 after falling back to $0.594 following the Reserve Bank of New Zealand’s interest rate decision, which was widely expected by markets. The Kiwi faced downward pressure after rising 0.42% due to a rebound in the US dollar, supported by data pointing to improving economic sentiment.
