MNI RBNZ WATCH: MPC Set To Cut 25 Basis Points To 3.5%

The Reserve Bank of New Zealand is likely to lower its Official Cash Rate a further 25 basis points to 3.50% as it feels its way towards neutral when it meets next Wednesday. 

Former Governor Adrian Orr signalled the Bank’s intent to reduce the OCR a further two times at least this year at the Monetary Policy Committee’s last meeting in February, although at a more gradual pace compared to the last three 50bp cuts that kicked off in September 2024. (See MNI RBNZ WATCH: Orr Signals More Gradual Cuts Ahead)

While the economy grew faster than expected over Q4, data has printed largely in line with forecasts laid out in February’s Monetary Policy Statement. Markets have fully priced in a 25bp cut next week and at the following May 28 meeting, with a 2.75% OCR expected by November, below the lower bound of the RBNZ’s 3% neutral estimate. 

Deputy Governor Christian Hawkesby, now acting governor following Orr’s recent departure, told MNI in February the Reserve would likely not need to push rates below neutral to stimulate the economy. (See MNI INTERVIEW: RBNZ Deputy Sees OCR Dip To Neutral, No Further)

DATA POINTS

New Zealand exited recession over Q4, growing 0.7% q/q, 30bp higher than expected, and up from Q3’s 1% contraction, data from Stats NZ showed last month.

However, other data points were less compelling. Private consumption grew only 0.1% over Q4, picking up from a 0.3% contraction in Q3, and by 0.2% y/y, while capital expenditure rose 0.1%, up from a 2.5% decline. 

While Stats NZ has not updated its data for unemployment, which stood at 5.1% over Q4, indicators for February last week showed little to suggest any significant improvement on the RBNZ’s 5.2% March quarter forecast. 

Stats NZ’s monthly selected price indices also showed prices continuing to moderate, which could prompt the RBNZ to revise down its inflation forecasts when it updates its MPS in May. The Reserve currently sees inflation at 2.4% y/y over Q1 and Q2, and 2.5% by Q4, up from 2024's fourth quarter 2.2% result. (See chart)

New Zealand does not have a significant trading relationship with the U.S., but its exports could also be impacted by tariffs imposed on major trading partners such as China. The MPC’s post-decision communications should offer some insight into how it expects global growth to suffer under the U.S.’s new trade regime.

ORRLESS RBNZ 

The RBNZ is yet to appoint a permanent governor following Orr’s shock departure last month and this will be the first MPC decision without his input this cycle. The government must first appoint a governor on a temporary six-month term, before making a final decision, but has not yet revealed candidates for the position. The MPC will operate one member short until a decision is made.