The Reserve Bank of New Zealand cuts interest rates by 25 basis points, increasing easing efforts amid rising global risks

Updated Version 1 - The Reserve Bank of New Zealand cuts interest rates by 25 basis points, increasing easing efforts amid rising global risks Content and related background of the RBNZ statement The Reserve Bank of New Zealand has lowered the cash rate by 25 basis points to 3.25% as expected. The central bank warns that U.S. tariffs will lead to a decline in New Zealand's demand and global economic growth. The Reserve Bank of New Zealand predicts that the rate cut in the easing cycle will be slightly larger than three months ago. Wellington, May 28 - The Reserve Bank of New Zealand on Wednesday cut the benchmark interest rate by 25 basis points to 3.25%, stating that the magnitude of the rate cuts in the easing cycle will be slightly larger than the estimates made three months ago, highlighting the increased risks to economic growth from the sharp shift in U.S. trade policy. This decision aligns with Reuters' survey estimates, where among 30 economists surveyed, all but one predicted that the Reserve Bank of New Zealand would cut the Official Cash Rate (OCR) for the sixth consecutive time. Since August, the Reserve Bank of New Zealand has cut rates by 225 basis points, providing room for decision-makers to lower borrowing costs amid new global risks posed by U.S. President Trump’s trade war and lower inflation rates. The Reserve Bank of New Zealand stated in a release: “The inflation rate is within the target range, and the committee is fully capable of responding to developments in domestic and international conditions to maintain price stability in the medium term.” The central bank currently predicts that the Official Cash Rate will be 2.92% in Q4 2025 and 2.85% in Q1 2026, with the expected magnitude of rate cuts in the easing cycle slightly expanded from the estimates made in February. However, the decision to cut the Official Cash Rate by 25 basis points was not unanimous, with one of the five committee members voting to keep the cash rate at 3.5%. The meeting minutes of the Reserve Bank of New Zealand noted: “The reason for lowering the Official Cash Rate to 3.25% is that the Consumer Price Index (CPI) increase is within the target range, and there is significant idle capacity in the economy.” The bank warned that recent developments in the international economic situation, primarily characterized by uncertainty over U.S. tariffs, are expected to reduce domestic demand and global economic growth. New Zealand was the first country to withdraw pandemic-era stimulus policies, with the Reserve Bank of New Zealand raising the benchmark interest rate by 525 basis points from October 2021 to September 2023 to curb inflation, marking the most aggressive tightening policy since the introduction of the Official Cash Rate in 1999. However, punitive borrowing costs severely impacted demand, causing the economy to fall into recession last year. Although the economy has emerged from the trough, growth remains weak and is further hindered by the global economic slowdown and government tightening fiscal strategies. Markets expect that lower inflation rates will provide the Reserve Bank of New Zealand with enough room to cut the cash rate at least once more this year New Zealand's inflation rate is 2.5%, still within the target range of 1%-3%, but the central bank predicts that the inflation rate will rise to 2.7% in the third quarter