New Zealand Central Bank Pauses Rate Cuts as Recession Risks Loom
On July 9, the Reserve Bank of New Zealand (RBNZ) kept the Official Cash Rate (OCR) steady at 3.25%, in line with market expectations. This pause brings an end to six consecutive rate cuts since August 2023, during which the rate was slashed by a cumulative 225 basis points.
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The RBNZ's Monetary Policy Committee stated that it needs to monitor inflation trends and the second - quarter data set to be released on July 21. If future inflation follows the moderating path predicted in May, further rate cuts may be on the cards.
The economic data presents a mixed picture. Positively, New Zealand's GDP grew by 0.8% in the first quarter, exceeding expectations, and the annual CPI rate of 2.5% has returned to the target range. However, there are signs of a looming recession. The central bank's real - time GDP indicator suggests a contraction in the second quarter. Business surveys indicate a decline in economic activity, with the retail slump persisting for three years. Unemployment is on the rise, household consumption is weak, and the property market remains stagnant. Business investment appetite is low, and agricultural export earnings are mostly used for debt repayment. The government's spending cuts, aiming to reduce public spending from 34% to 30% of GDP, are also weighing on growth.
In the market, the swap market has placed over a 70% bet on a rate cut in August. Most institutions predict only one more rate cut in 2025, with the OCR potentially reaching 3.0% by the end of the year. The next interest - rate meeting is scheduled for August 28.
