28-May-2025 11:09

The Reserve Bank of New Zealand reduced its benchmark rate by a quarter-point, as widely expected on Wednesday, as higher trade tariffs and increased policy uncertainties overseas are set to weigh on domestic economic outlook.

The Monetary Policy Committee, led by acting governor Christian Hawkesby, decided to cut the Official Cash Rate by 25 basis points to 3.25 percent. The decision was passed by a 5-1 vote.

This was the lowest borrowing costs since August 2022. The bank started its current easing cycle in August 2024.

Inflation is within the target band, and the Committee is well placed to respond to domestic and international developments to maintain price stability over the medium term, the bank said.

Policymakers observed that there is significant spare capacity in the economy. Moreover, measures of core inflation and wage inflation continued to weaken.

In addition, outlook for domestic activity turned weaker because of international developments.

The economy is recovering after a period of contraction underpinned by higher commodity prices and lower interest rates.

Inflation is forecast to rise to 2.7 percent in the third quarter of 2025 and then return to near the 2 percent target midpoint from 2026, the bank said.

Further, the forecast suggest that the OCR could fall to 2.9 percent by December 2025.

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