On Wednesday, New Zealand’s central bank lowered its benchmark interest rates by 50 basis points to 2.5%, marking the lowest policy rate since July 2022 amid concerns over growth.
This reduction in the overnight cash rate was greater than the anticipated 25 basis points by economists surveyed by Reuters.
According to its announcement, the Reserve Bank of New Zealand indicated that inflation is expected to return to the 2% target by the first half of the upcoming year, while highlighting subdued economic activity in mid-2025, which justified a more significant rate cut.
“The sluggish growth in disposable incomes and housing prices continues to impact economic activity, yet lower interest rates are facilitating a rebound in consumption,” the bank noted.
New Zealand’s GDP saw a larger than anticipated contraction in the second quarter, decreasing by 1.1% year on year, in contrast to the 0.9% decline predicted by economists surveyed by Reuters.
“This is partly a result of domestic limitations on the supply of goods and services in certain sectors, alongside the effects of global economic policy uncertainty.”
The RBNZ also addressed the ramifications of trade limitations and tariffs, stating that global trade volumes and economic activity have thus far demonstrated resilience.
Expectations for growth in 2025 have improved for New Zealand’s trading partners, especially concerning China, Taiwan, and various other Asian economies, although a slowdown is projected for 2026, according to the RBNZ.
The World Bank on Tuesday increased its 2025 growth forecast for China as part of a broader uplift in estimates for East Asia and the Pacific. The World Bank now anticipates China’s economy to grow by 4.8%, up from the 4% estimated in April.
Domestically, inflationary pressures have continued to ease, providing the RBNZ with greater assurance that these pressures are well-managed, the bank remarked.
Headline inflation stood at 2.7% for the second quarter, close to the upper limit of the RBNZ’s target range of 1%-3%.
