Subdued market reactions amid global political shifts
This past week, which saw the inauguration of Donald Trump and potential for significant market shifts, concluded with surprisingly mild reactions.
Kiwibank’s economic team, including Jarrod Kerr, Sabrina Delgado, and Mary Jo Vergara (pictured above, from left to right), observed that despite concerns, markets were largely unaffected thanks to postponed tariff implementations.
Trump’s softened stance on China, moving from a proposed 10% tariff to a reluctant posture against any tariffs, has kept major disruptions at bay. This ongoing negotiation continues to keep markets in a state of watchful anticipation.
Recovery phases of the New Zealand economy
Turning attention back to New Zealand, Kiwibank economists are analysing the country’s economic trajectory in distinct phases.
After enduring a deep recession that started in 2022 and extended into late 2024, they believe the downturn concluded in the final months of last year.
Currently, New Zealand is in a transitional recovery phase, marked by improving confidence and still-muted activity. Economists predict this will set the stage for a more robust growth phase dubbed “thrive in ‘25,” driven by falling interest rates and a resurgence in global economic activity.
Monetary policy and inflation dynamics
Significant for monetary policy, the easing inflation has permitted the Reserve Bank (RBNZ) to lower the OCR, influencing mortgage repricing for countless Kiwi households.
This shift is expected to enhance disposable incomes significantly, particularly as many fixed-rate mortgages are set for renewal at substantially lower rates within the next six months.
Additionally, the report from Kiwibank highlighted a stabilising inflation rate, with the December quarter showing a contained annual increase of 2.2%.
Looking ahead: Economic indicators and rate cuts
The future economic outlook is cautiously optimistic, with disinflation providing room for further rate reductions.
A 50-basis point cut to 3.75% in February seems imminent, with another adjustment to 3.5% likely by April or May. However, the subsequent monetary policy path remains uncertain, with signals of a prolonged pause at 3.5%, the Kiwibank economists said.
Kiwibank’s stance is that more aggressive action may be necessary to sustain recovery into 2026.
Financial markets and trading insights
In the realm of financial markets, Kiwi swap yields have shown a downward trend, reflecting relief over postponed tariff decisions and alignment with RBNZ’s inflation targets.
Traders, including Matthew Crowder and Mieneke Perniskie, noted that the market is adjusting to these macroeconomic signals, with expectations of monetary easing reflected in bond and currency shifts.
The upcoming Federal Reserve decision and its implications for global and local markets are also on traders’ radars, highlighting a week filled with crucial economic updates.
For the full Kiwibank insights, click here.