Central Bank decides to decrease rates in May

Latest bank decision: At its meeting on 28 May, the Central Bank agreed to reduce the Official Cash Rate (OCR) by 25 basis points to 3.25%, taking total rate cuts to 225 basis points since August 2024, when the easing cycle began.

Under-control inflation and international uncertainty were key drivers: The decision was influenced by headline and core inflation both being comfortably within the Bank’s 1.0–3.0% target range, and the Bank’s expectations that inflation would remain in-target ahead. This provided the leeway to keep cutting rates to support the economy. While the Bank commented that economic activity was recovering, it also mentioned that overseas tariffs and policy uncertainty would hamper the recovery going forward.

Further rate cuts to come: Virtually all our panelists expect further rate cuts later this year to support economic activity; 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.

Panelist insight: On the outlook, Goldman Sachs analysts said: “While [the] mixed communications indicate a somewhat more cautious RBNZ under Governor Hawkesby, the MPC's underlying reaction function and view on New Zealand's economy does not appear to have changed much. Our base case remains for another 25bp cut in July to a terminal rate of 3.0%.” ANZ analysts were more dovish: “The market’s estimate of how much further easing is required will continue to wax and wane with the data flow. For our part, we are forecasting further 25bp cuts in July, August and October, taking the OCR to a low of 2.5% to shore up the recovery in the face of global headwinds.”

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