NZ central bank cuts cash rate to spur growth, counter tariff risks

WELLINGTON – New Zealand’s central bank cut its benchmark rate by 25 basis points to 3.5 per cent on April 9, as policymakers sought to revive a struggling economy and counter risks from trade tariffs.

The decision is in line with a Reuters poll where all 31 economists surveyed forecast the Reserve Bank of New Zealand (RBNZ) would cut the cash rate for the fifth successive meeting.

The central bank has now cut rates by 200 basis points since August 2024, with slowing inflation giving policymakers leeway to lower borrowing costs as the economy faces headwinds from potentially slower global growth due to rising trade tensions.

The committee agreed that a 25 basis point reduction in the official cash rate (OCR) would be consistent with a mandate of maintaining low and stable inflation, the minutes of the meeting said.

“As the extent and effect of tariff policies become clearer, the committee has scope to lower the OCR further as appropriate,” the minutes added.

Global markets have been in turmoil since US President Donald Trump’s decision last week to impose new tariffs on imports from most of the world. His announcement was met with retaliatory tariffs from many trading partners.

The RBNZ statement added that having consumer price inflation close to the middle of its target band of 1 per cent to 3 per cent puts the committee in the best position to respond to developments.

This is a monetary policy review, and the central bank is not due to release updated economic forecasts until it meets in May.

Finance Minister Nicola Willis warned on April 8 that the Treasury now expected growth from its trading partners to be at 2 per cent in 2026, down from earlier forecasts of 2.5 per cent.

New Zealand, which faces a 10 per cent tariff on exports to the US, is expected to fare relatively well as weakness in the New Zealand dollar offsets much of the impact.

The RBNZ added that the announced increases in trade barriers weaken the outlook for global economic activity.

“On balance, these developments create downside risks to the outlook for economic activity and inflation in New Zealand,” it said.

New Zealand’s economy emerged from recession in the fourth quarter of 2024 with 0.7 per cent quarterly growth. Employment is expected to continue to rise in the first half of 2025.

The RBNZ said in its statement that household spending and residential investment remain weak.

Its move on April 9 marks the first interest rate decision since Mr Christian Hawkesby took up the role of governor following Mr Adrian Orr’s unexpected resignation in March. REUTERS