New Zealand’s Central Bank Holds Interest Rate Steady
New Zealand’s central bank has decided to hold the benchmark interest rate at 3.25 percent. This decision was expected, as 19 out of 27 economists forecasted that the Reserve Bank of New Zealand would keep the cash rate steady for the first time since it started cutting rates in August 2024.
Background on Interest Rate Cuts
The central bank has cut rates by 225 basis points since August, but with inflation at 2.5 percent, it has adopted a more cautious approach. The bank has cut rates to curb inflation, which was previously high due to pandemic-era stimulus. However, the economy has emerged from a slump, and parts of it remain weak.
Future Outlook
The RBNZ said in its policy statement that if medium-term inflation pressures continue to ease as projected, it expects to lower the Official Cash Rate further. The economic outlook remains highly uncertain, and further data on the speed of New Zealand’s economic recovery and the impacts of tariffs will influence the future path of the Official Cash Rate.
Factors Affecting the Economy
The statement said that 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.
Market Expectations
Markets expect ongoing weakness in the economy will give the RBNZ sufficient leeway to cut rates at least once more this year. The RBNZ is forecasting inflation will reach the top of the target band of 1 percent to 3 percent in the second and third quarters of 2025.
Conclusion
In conclusion, New Zealand’s central bank has decided to hold the interest rate steady, citing uncertainty in the economic outlook. The bank is cautious about inflation and is waiting for further data before making any changes to the Official Cash Rate. The decision is expected to have an impact on the country’s economy, which is still recovering from a slump. The RBNZ’s forecast that inflation will reach the top of the target band in 2025 suggests that the bank is taking a careful approach to managing the economy.
