File image of RBNZ Governor Orr. Image © Pound Sterling Live, Still Courtesy of RBNZ.
The New Zealand Dollar strengthened after the Reserve Bank of New Zealand (RBNZ) appeared to have performed a final 50 basis point interest rate cut.
From here, the cuts are likely to be done in smaller increments as it approaches a pause to the cutting cycle.
"With the OCR now much closer to neutral and the economy recovering slowly, we expect a more cautious RBNZ from here. Our view is that this is likely the last 50bps cut. For now, we look for a further 75bps of rate cuts in clips of 25bps for the rest of this year, taking the OCR to 3.00% by 3Q25," says Lee Sue Ann, Economist at UOB.
The New Zealand Dollar has been weighed down by the decisive approach to cutting rates at the RBNZ, and signals that it is in the home stretch will be a supportive development.
The RBNZ cut the Official Cash Rate (OCR) from 4.25% to 3.75%, citing declining inflation, and said that it has the scope to cut rates even further in 2025. The RBNZ said, "if economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025."
This is the RBNZ’s fourth cut since it kicked off an easing cycle in 2024.
The Pound-to-New Zealand Dollar exchange rate initially spiked to 2.22 following the decision before retreating to 2.2036. The U.S. Dollar-to-New Zealand Dollar exchange rate initially spiked to 1.76 and then retreated to 1.7456.
According to the central bank's latest projections, the OCR is expected to decline to 3.1% by year-end and remain at that level until early 2028.