Central Bank Interest Rate Outlook in New Zealand

WELLINGTON (Reuters) – New Zealand’s central bank might reduce interest rates as early as Wednesday, a year sooner than anticipated, due to slowing inflation, rising unemployment, and weak economic growth.

A Reuters poll involving 31 analysts last week indicated that 19 expect the Reserve Bank of New Zealand (RBNZ) to maintain the cash rate at 5.5%, while 12 predict a 25 basis points cut, with opinions split on the decision.

Markets are betting on a 76% chance of a rate cut following a survey seeing inflation expectations drop to a three-year low.

The RBNZ, one of the first central banks to withdraw pandemic-related monetary stimulus, has kept the cash rate at 5.5% since May 2023 to manage high inflation.

The potential rate cut stands in stark contrast to guidance from May, which suggested no easing would occur before mid-2025.

Stephen Toplis, head of research at Bank of New Zealand, stated, “The New Zealand economy is contracting, spare capacity is rising rapidly, and the unemployment rate is some way from its peak. This is alleviating pressure on inflation, and importantly, lower wage growth will help reduce stubborn non-tradables inflation.”

Toplis believes the conditions are now favorable for the RBNZ to reduce its cash rate.

If the RBNZ decides to maintain current rates, many analysts predict revised forecasts. Almost all surveyed economists expect the central bank to start cutting rates this year, with most anticipating a decrease to 5.0% by year’s end.

Westpac industry economist Paul Clark noted that while he anticipates the cash rate to be held steady at 5.5%, he expects preparations for rate cuts later this year and significant downward revisions to the cash rate outlook for 2025.