New Zealand: Central Bank decreases rates in February
Latest bank decision: At its meeting on 19 February, the Central Bank agreed to lower the Official Cash Rate (OCR) by 50 basis points to 3.75%, taking total rate cuts since mid-2024 to 175 basis points.
Monetary policy drivers: The Central Bank’s decision was primarily driven by inflation being sustainably within the target range of 1.0 to 3.0 percent, measures of core inflation converging towards the target midpoint, and subdued economic activity.
Policy outlook: The Central Bank indicated that if economic conditions continue to evolve as projected, it has the scope to lower the OCR further through 2025. This is in line with our Consensus, which is for multiple rates cuts between now and end-2025.
Panelist insight: On the outlook, United Overseas Bank’s Lee Sue Ann said:
“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.”
Goldman Sachs analysts said:
“From our perspective, we continue to expect the RBNZ to slow the pace of cuts to 25bps per meeting to reach a terminal rate of 3.0% in July 2025. That said, we see risks skewed to larger/deeper cuts if ‘hard’ data do not start to show signs of improvement, including upcoming data on GDP growth.”