RBNZ Cuts Rates, Hints at More Easing; NZD Sinks to Four-Month Low

TradingKey - The Reserve Bank of New Zealand (RBNZ) cut its Official Cash Rate (OCR) by 25 basis points to 3.0%, the lowest level since 2022, in line with market expectations. This marks the eighth rate reduction since the central bank initiated its easing cycle in August 2024, with cumulative cuts totaling 250 basis points.

Source: Bloomberg

In its official statement, the RBNZ explicitly cited stalled economic recovery in Q2 and further moderating inflation prospects as key drivers for the cut.

On inflation, the central bank noted that while headline inflation edged up slightly, core and non-tradable inflation are projected to gradually ease, with inflation expected to reach the 2% target by mid-2026.

The bank anticipates that the economy will gradually rebound in H2 2025 as borrowing costs decline, although it faces challenges from global trade tensions and rising tariffs.

Notably, the decision passed via a 4-2 vote, with the dissent centered on whether to implement a conventional 25bps cut or a more aggressive 50bps reduction to 2.75%.

"Members seriously considered a 50bps cut – that speaks volumes," said Abhijit Surya, Senior Asia-Pacific Economist at Capital Economics.

Regarding future policy direction, the RBNZ emphasized that OCR trajectory will closely depend on the pace of economic recovery. Should medium-term inflation pressures continue easing as projected, further rate cuts remain possible.

The RBNZ’s forward guidance indicates the quarterly average OCR is projected to fall to 2.71% by Q4, suggesting high probability of additional cuts at the October and November meetings.

Fueled by dovish expectations, the New Zealand dollar (NZD/USD) tumbled approximately 1.25% to 0.5817 – a four-month low. Analysts anticipate further weakness toward 0.58 in the near term.

Source: TradingKey

Concurrently, New Zealand’s 2-year bond yields and swap rates hit their lowest levels since 2022, reflecting market expectations of additional easing.