The Reserve Bank of New Zealand (RBNZ) chopped interest rates by a half point on Wednesday. The jumbo cut was widely expected by the market and marked a second straight meeting that the central bank has cut rates by a half-point. The cash rate is now at its lowest level since November 2022. The RBNZ has demonstrated it can be aggressive and has chopped rates by 175 basis points in the current easing cycle, as it is determined to boost a flagging economy.

RBNZ Statement: Inflation Remains Within Target Band

The rate statement noted that consumer price inflation remains near the midpoint of the 1 to 3 percent target band and that the economic outlook gave the Monetary Policy Committee confidence to continue lowering the cash rate. However, members expressed concern that economic activity in both New Zealand and abroad remained “subdued” which posed risks to economic growth and potential volatility in inflation.

The statement briefly referred to the risks of “trade restrictions” that could hurt the New Zealand economy without mentioning US President Trump’s threat of tariffs. Trump has not stated plans to slap New Zealand with tariffs but this is a concern, as the US is New Zealand’s second-largest trade partner after China and accounts for 12% of New Zealand’s exports.

RBNZ Governor Signals More Cuts, Sooner

RBNZ Governor Adrian Orr said at a follow-up press conference that the central bank expected to lower the cash rate to 3% by the end of the year. This was lower than the November forecast, which projected the cash rate at 3.2% at year’s end. The central bank will likely ease off the pedal a bit and lower rates by modest quarter-points increments.

New Zealand Dollar Higher, Stock Market Steady After RBNZ Announcement

The New Zealand dollar has gained ground despite the large rate cut and Governor Orr’s signal that the central bank would continue cutting rates in the coming months. This is probably because the Governor made clear that cuts would now happen at a reduced pace.

The NZD/USD currency pair climbed 0.45% immediately after the rate announcement and has held onto these gains in the European session. NZD/USD is currently trading at $0.5729.

The NZX 50, New Zealand’s main stock index, posted very slight losses today. The index fell 17.76 points (0.14%), and closed at 13,033.36.

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