The Reserve Bank of New Zealand (RBNZ) slashes the Official Cash Rate (OCR) by 25 basis points, from 3.75% in February to 3.50% as of today.
“Annual consumer price inflation remains near the midpoint of the Monetary Policy Committee’s 1 to 3% target band. Firms’ inflation expectations and core inflation are consistent with inflation remaining at target over the medium term,” RBNZ stated in its media release.
RBNZ said New Zealand’s economic activity has progressed largely in line with expectations since the February Monetary Policy Statement. Stronger-than-anticipated export prices and a weaker exchange rate have helped develop incomes in the primary sector and contributed to overall economic growth.
However, residential investment and household spending continue to show weakness.
“Recent declines in interest rates and higher export earnings are expected to support economic growth. The pace of growth is expected to be modest, as potential GDP growth is constrained by ongoing weakness in productivity growth and low net immigration,” RBNZ added.
Meanwhile, the recently announced tariff increases in the United States, coupled with retaliatory measures from several trading partners and heightened geoeconomic uncertainty, are expected to hinder global economic growth.
The Committee highlighted that the inflationary effects of recent tariff increases remain uncertain, especially due to the policy’s recent implementation and potential shifts in global trade policy dynamics. Inflation impacts will differ across countries.
In a statement, Finance Minister Nicola Willis said the OCR cut reflects the government’s efforts to control public spending.
“That is good news for households because it means lower mortgage rates and more money in people’s pockets to help with the cost of living,” Willis said.
“For example, for someone with a $500,000 mortgage over 25 years, a two percentage point drop in their interest rate reduces their repayments by about $300 a fortnight.”
For Willis, the OCR reduction also presents optimism for businesses “because it means more money flowing through their tills.”
“The government knows many families and businesses are still doing it tough, but our focus on stopping wasteful spending has made a difference.”
“Increasing global uncertainty will present further challenges to the economy in coming months, but New Zealanders can be assured this government will continue to act in a fiscally prudent manner while putting a premium on stability and certainty and promoting pro-investment policies.”
“Now more than ever, we need to ensure we get value for every dollar of public money spent.”