Anticipated rate cut by RBNZ aims to bolster NZ's gradual economic recovery
Kiwibank economists expect a 25-basis-point reduction in the OCR at the RBNZ’s April meeting, a move largely anticipated by market observers as “baked into the cake.”
This adjustment aims to shift from the current restrictive policy towards a more stimulatory setting to help recover from a deep and prolonged recession.
Market reaction: Subdued expectations
The forthcoming rate cut to 3.5% is seen as adequately factored into the rates market, with a 95% probability already priced in.
Looking ahead to May, there’s a significant chance for another reduction, though with only an 80% market conviction.
Overall, Kiwibank anticipates little impact on financial markets or the currency, which continues to hover around 57 US cents amidst global uncertainties.
Economic indicators: Signs of recovery amid challenges
Recent data including positive purchasing managers’ index (PMI) scores and robust export figures suggest early signs of economic revival.
However, Kiwibank noted that risks remain predominantly from international developments, particularly US trade policies that introduce significant volatility and potential disruptions to global trade.
Global pressures: Tariffs and geopolitical tensions
The narrative around global economic conditions is increasingly fraught with the imposition of US tariffs and the potential for escalating trade conflicts.
New Zealand, with its open economy, remains particularly susceptible to these external shocks, which could necessitate further monetary easing.
US President Donald Trump recently announced new tariffs aimed at correcting unfair trade practices. NZ faces a 10% tariff on goods exports to the US, impacting sectors like meat, dairy, and wine, costing roughly $900m annually, about 0.2% of NZ’s GDP, according to an ASB report.
Strategic considerations for RBNZ
As New Zealand navigates these complex global dynamics, RBNZ’s monetary policy adjustments are crucial for setting the economy on a path to sustainable growth.
The central bank is likely to continue monitoring international economic trends and adjust its policy framework to mitigate against external risks and support domestic recovery.
