The decision to cut rates to 3.25% was widely expected by the markets and marked a sixth straight cut by the central bank. The cash rate is currently at its lowest level since August 2022. The RBNZ has been aggressive as it has chopped rates by 225 basis points in the current easing cycle as it is determined to boost the weak economy.
RBNZ Statement: Inflation Remains Within Target Band
The rate statement noted that consumer price inflation increased to 2.5% in the first quarter but remained within the RBNZ inflation target of 1%-3%. The statement said that the New Zealand economy was improving but tariffs and global economic uncertainty would likely dampen the recovery and reduce inflationary pressures.
The members highlighted the downward revision to economic growth forecasts for China and the US due to the tariffs between the two countries, which are expected to lower global demand for New Zealand exports.
The rate decision was widely expected but the 5-1 vote (one member voted to maintain rates) was a surprise as the decision was expected to be unanimous.
RBNZ Governor Hawkesby: Next Rate Decision Will Depend on “Developments”
RBNZ Governor Christian Hawkesby said at a follow-up press conference that the central bank would make its next rate decision based on “developments”, in particular what those developments mean for medium term inflation pressure. Hawkesby said that the RBNZ current forecasts did not indicate a bias either way as to what would be the central bank’s next step. The Bank’s chief economist, Paul Conway, supported Hawkesby’s remarks by stating that the cash rate was now within the neutral zone.
This is a significant point as it means that the RBNZ is comfortable with current rates and can ease off its aggressive cutting unless the data and geopolitical concerns dictate a change in rates. The RBNZ doesn’t meet again until July 9.
New Zealand Dollar Higher, Stock Market Declines Sharply after RBNZ Announcement
The New Zealand dollar has gained ground despite today’s rate cut. The NZD/USD currency pair gained ground immediately after the rate announcement and has held onto these gains in the European session. NZD/USD is currently trading at 0.5969, up 0.37% on the day.
The NZX 50, New Zealand’s main stock index, posted sharp losses today. The index fell 220 points (1.75%), and closed at 12,362.
Ready to trade our Forex daily analysis and predictions? Check out the best forex brokers in New Zealand worth using