More OCR cuts on the horizon as RBNZ flags downside risks
The Reserve Bank of New Zealand (RBNZ) has signalled that further interest rate cuts are on the table as escalating global trade tensions—particularly those sparked by US President Donald Trump’s tariff moves—threaten to derail the nation’s modest economic recovery and weaken inflationary momentum.
While Wednesday’s widely anticipated 25 basis point cut brought the official cash rate (OCR) to 3.50%, all eyes are now on how much further the central bank is willing to go.
In its statement, the RBNZ acknowledged that “recently announced increases in global trade barriers weaken the outlook for global economic activity,” and added, “the Committee has scope to lower the OCR further as appropriate.”
Economists are quickly adjusting their forecasts. ASB chief economist Nick Tuffley now sees the OCR dropping to 2.75%, down from a previous estimate of 3.25%, citing a “noticeable tilt” to the downside in medium-term inflation risks.
Kiwibank economists went even further, forecasting a 2.5% OCR by year-end, while Westpac has warned its current forecast low of 3.25% may now be too high.
The RBNZ has now cut rates at five consecutive meetings, removing 200 basis points from the OCR since August—making it one of the most aggressive central banks in the world during this easing cycle.
Though the New Zealand dollar initially dipped below 55 U.S. cents following the announcement, it quickly stabilised. The RBNZ noted the currency’s recent depreciation could help cushion some of the expected demand shock by supporting exports and domestic consumption.
Despite earlier forecasts suggesting no need to drop the OCR below a neutral 3%, the global environment appears to have changed that view. The committee acknowledged that recent developments “have shifted the balance of risk for New Zealand inflation lower,” and while uncertainty remains, the bias is clearly toward further easing.
With domestic demand still weak and earlier OCR cuts yet to fully work their way through the economy, the RBNZ made it clear that more easing is likely—if global risks continue to mount.
Markets will be watching closely for the Monetary Policy Statement in May, where updated forecasts and more concrete guidance are expected.
Are more cuts the right move in this global environment? Share your thoughts below.
