The Reserve Bank of New Zealand (RBNZ) has cut its official cash rate (OCR) by 25 basis points to 3.50%, a move that was widely anticipated by economists and market analysts. This marks the central bank’s lowest rate since October 2022 and the first monetary policy decision under new Governor Christian Hawkesby, who succeeded Adrian Orr following his resignation in March.
The decision reflects growing concerns over global economic uncertainty, particularly following recent increases in international trade tariffs—most notably those imposed by the United States. These developments have heightened recession risks and weakened the outlook for both global and domestic growth. In its policy statement, the RBNZ noted that the new trade barriers pose downside risks to New Zealand’s economic activity and inflation outlook.
While inflation currently sits near the midpoint of the bank’s 1% to 3% target range, the RBNZ indicated that the economy remains fragile. Household spending and residential investment are still subdued, and although New Zealand exited recession in Q4 2024 with 0.7% growth, business sentiment continues to be soft.
The central bank emphasized that it retains the flexibility to lower rates further if warranted by future developments, particularly if the effects of tariff policies become more pronounced. Financial markets now price in a high probability of another rate cut in May, with expectations that the OCR could fall to around 2.67% by the end of 2025.
Although a weaker New Zealand dollar may help offset some of the impact from reduced export competitiveness, economists warn that the country could still be affected by weaker demand from key trading partners.
The RBNZ will update its economic forecasts at its next meeting in May, where further guidance on the future direction of monetary policy is expected.