New Zealand’s central bank cut its benchmark interest rate by 25 basis points to 3.25% on Wednesday and signaled a slightly deeper easing cycle than it forecast three months ago, citing rising economic risks from shifts in U.S. trade policies.
The Reserve Bank of New Zealand (RBNZ) said inflation is within the target range and the committee is prepared to respond to domestic and international developments to maintain price stability over the medium term.
Since August, the central bank has reduced rates by 225 basis points. It now forecasts the cash rate will be 2.92% in the fourth quarter of 2025 and 2.85% in the first quarter of 2026, reflecting a deeper easing cycle than projected earlier this year.
One of the five committee members voted against the rate cut, preferring to hold the rate at 3.5%. The New Zealand dollar rose to $0.5970 from $0.5930, while two-year interest rate swaps climbed 11 basis points to 3.23%.
The central bank warned that U.S. tariff increases could lower global demand for New Zealand exports, particularly from Asia, which would constrain domestic growth. It also noted ongoing uncertainty over the effects of U.S. trade policies on demand and supply.
New Zealand’s economy had slowed sharply after a period of rapid interest rate increases that began in late 2021 and lasted until September 2023. The central bank lifted rates by 525 basis points during that period to curb inflation. While the economy has since come out of recession, growth remains weak.
Annual inflation stands at 2.5%, within the RBNZ’s target band of 1% to 3%, with expectations that it will hover near the midpoint next year. The central bank said the cash rate is now near neutral, and future policy will depend on evolving inflation pressures.
The RBNZ’s approach to easing contrasts with the more cautious stance of the U.S. Federal Reserve and the Reserve Bank of Australia as they assess broader U.S. economic policies.
