New Zealand: Central Bank keeps rates on hold in July
Latest bank decision: At its meeting on 9 July, the Central Bank decided to leave the Official Cash Rate (OCR) at 3.25%, following rate cuts of 225 basis points from August 2024 to May 2025.
Multiple drivers underpin hold: The decision was likely influenced in part by the desire to assess the effect of past monetary easing on the economy. Moreover, international uncertainty is elevated due to U.S. tariff threats, further encouraging a wait-and-see approach. Domestically, economic activity is recovering while inflation is expected by the Bank to rise towards the top of the Bank’s 1.0–3.0% target range later this year, providing a further reason not to continue with rate cuts.
Further rate cuts expected: Virtually all our panelists expect further rate cuts later this year; our Consensus is currently for the OCR to reach a terminal rate of slightly below 3%, with a weaker global economy due to tariffs a downside risk to rates.
Panelist insight: On the outlook, EIU analysts said:
“We remain of the view that US tariffs will result in softer import prices in New Zealand in the second half of 2025. This will mean that the RBNZ will opt to reduce the policy rate four times in the year as a whole, taking the OCR to a terminal rate of 2.75% by the end of 2025.”
ANZ analysts were more dovish:
“We continue to expect that the RBNZ will cut the OCR by 25bp at the next Monetary Policy Statement in August. Beyond that, we see the risks as tilted toward medium-term inflation being too low rather than too high as the economy continues to recover but underperforms RBNZ expectations. That clears the way for further easing in November and February, ultimately taking the OCR to a low of 2.5%.”