New Zealand Central Bank Cuts Interest Rate to 2.5% Amid Economic Weakness

New Zealand’s central bank shocked some analysts by slashing its benchmark interest rate by 50 basis points to 2.5%, signaling deep concern over the country’s sluggish economic recovery. The Reserve Bank of New Zealand (RBNZ) said it remains open to further cuts if needed to sustain inflation near its 2% mid-point target in the medium term.

“The Committee reached consensus to reduce the official cash rate by 50 basis points to 2.5 percent,” the RBNZ stated, emphasizing flexibility for more monetary easing if conditions worsen.

The decision, bolder than expected, caused the New Zealand dollar (NZD) to fall 0.90% to $0.5745, while two-year interest rate swaps slipped from 2.619% to 2.521%. Investors interpreted the move as a signal of additional monetary stimulus in the coming months to boost domestic demand.

The rate cut—larger than the 25-basis-point reduction predicted by most economists in a Reuters poll—aligns with growing pressure on policymakers to revive a faltering economy. Prime Minister Christopher Luxon, whose approval ratings have dropped amid weak growth and job concerns, had previously urged lower borrowing costs to lift consumer confidence and spending.

Since August 2024, the RBNZ has lowered rates by a total of 300 basis points, leveraging its policy room as inflation remains within the 1–3% target band. According to ASB Bank Chief Economist Nick Tuffley, the bank’s move reflects its judgment that “inflation pressures are likely to remain weaker than previously anticipated,” prioritizing economic recovery over waiting for clearer signs of rebound.

This decisive rate cut underscores the RBNZ’s proactive stance in supporting growth amid global uncertainty—positioning New Zealand for potential further easing if economic indicators remain soft.