New Zealand central bank holds cash rate at 3.25%
The decision was in line with a Reuters poll in which 19 of 27 economists surveyed forecast the Reserve Bank of New Zealand would hold the cash rate for the first time since it started a cutting cycle in August 2024.
The central bank has cut rates by 225 basis points since August, but with inflation at 2.5 per cent and concerns that trade tensions could add to price pressures, the central bank has adopted a more cautious approach.
'If medium-term inflation pressures continue to ease as projected, the Committee expects to lower the Official Cash Rate further,' the RBNZ said in its accompanying policy statement.
'The economic outlook remains highly uncertain. Further data on the speed of New Zealand's economic recovery, the persistence of inflation, and the impacts of tariffs will influence the future path of the Official Cash Rate,' the statement said.
The minutes from the meeting said it expected to lower the rate in line with projections released at its May meeting.
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A global front-runner in withdrawing pandemic-era stimulus, the RBNZ aggressively lifted rates 525 basis points between October 2021 and September 2023 to curb inflation.
The punishing borrowing costs took a heavy toll on demand and tipped the economy into recession last year. While the economy has emerged from the slump, parts of it remain weak and growth is further hampered by slower global conditions and tight fiscal policy.
The statement said while elevated export prices and lower interest rates are supporting a recovery in New Zealand, heightened global policy uncertainty and tariffs are expected to reduce global economic growth.
'This will likely slow the pace of New Zealand's economic recovery, reducing inflation pressures,' it said.
Markets expect ongoing weakness in the economy will give the RBNZ sufficient leeway to cut rates at least once more this year.
New Zealand's central bank is forecasting inflation will reach the top of the target band of 1 per cent to 3 per cent in second and third quarters of 2025. REUTERS
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