The Reserve Bank of New Zealand (RBNZ) cut its Official Cash Rate (OCR) by 50 basis points to 3.75% in their February meeting as expected, marking its third consecutive substantial rate reduction as inflation remains contained and economic activity subdued.
Key Takeaways:
- RBNZ reduced OCR by 50 basis points to 3.75%, extending its easing cycle
- Annual consumer price inflation at 2.2%, near the midpoint of 1-3% target band
- Economic activity remains subdued with significant spare capacity
- Bank signals potential for additional rate cuts through 2025
- Decision reflects growing concerns about global trade uncertainty
The central bank also indicated scope for further easing through 2025 if conditions evolve as expected. Policymakers noted that while inflation remains within its target band, economic activity in New Zealand continues to be subdued and that price and wage-setting behaviors are adapting to a low-inflation environment.
Link to official RBNZ Monetary Policy Statement (February 2025)
In addition, the unemployment rate’s recent rise to 5.1% in Q4 2024, along with broader signs of labor market softening, appears to have given the RBNZ additional confidence to maintain its aggressive easing stance.
Looking ahead, the RBNZ expects economic growth to recover during 2025, supported by lower interest rates and improved export revenues from higher commodity prices and a lower exchange rate. However, the bank emphasized significant uncertainties, particularly around global trade policy and its potential impact on domestic inflation.
During the press conference, RBNZ Governor Adrian Orr outlined that the OCR path projects another 50 basis points of cuts by mid-2025, likely in two steps of 25 basis points each, around April and May. He reinforced a more measured approach moving forward while emphasizing that this trajectory depends on economic activity and incoming data.
Market Reaction
New Zealand Dollar vs. Major Currencies: 5-min
Overlay of NZD vs. Major Currencies Chart by TradingView
The New Zealand dollar, which had been cruising sideways a few hours leading up to the RBNZ decision, initially weakened across the board after the announcement of a 0.50% rate cut.
However, the Kiwi managed to pull up from its post-RBNZ lows a few minutes before the press conference, which then spurred further rallies as Governor Orr suggested more gradual easing in the next meetings.
The currency saw notable gains against major counterparts, with NZD/GBP leading the advance (+0.38%), followed by NZD/CHF (+0.31%) and NZD/USD (+0.22%) as traders may have already priced in the dovish outlook and booked profits after the event.
