New Zealand's central bank is set to slow the pace of interest-rate cuts after implementing a third consecutive 50-basis-point reduction, citing expectations that lower borrowing costs will drive an economic recovery.
The Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) to 3.75% from 4.25%, in line with market expectations.
Governor Adrian Orr indicated that future cuts are likely to be smaller, with the central bank projecting two 25-basis-point reductions at its April and May meetings.
While Orr expressed confidence in containing inflation, the RBNZ’s latest projections anticipate a rise to 2.7% later this year, potentially prompting policymakers to adjust their easing strategy. Rising trade uncertainties, including the impact of U.S. President Donald Trump’s tariff policies, also add to inflation risks.
The RBNZ’s projections show the average OCR declining to 3.14% by the end of 2025, lower than the 3.55% forecast in its November statement.
In its policy statement, the RBNZ remained confident that inflation was stabilising around target levels, despite some near-term fluctuations.
“The Committee is well placed to maintain price stability over the medium term. Having consumer price inflation close to the middle of its target band puts the Committee in the best position to respond to future inflationary shocks.” the statement read.
“Lower interest rates will encourage spending, although elevated global economic uncertainty is expected to weigh on business investment decisions.” the RBNZ noted.
The RBNZ maintained its forecast for a modest economic recovery in 2025 following last year’s contraction. The central bank expects GDP to shrink by 1.2% in the year ending March 2025 before rebounding to 1.8% growth in the year through March 2026.
Since initiating its easing cycle in August, the RBNZ has cut rates by 175 basis points, making it one of the most aggressive central banks in the world.
