The RBNZ Has Seen Enough To Cut More, But Not Enough To Do Enough

• Another RBNZ meeting, another rate cut, and another forecast cut. Today’s 25bps move to 3.25% is the sixth straight cut, and takes total easing to 225bps. And there’s more coming. Although the path is highly uncertain. Policy is much closer to neutral now, but it is still not stimulatory.
• The RBNZ has lowered the forecast OCR track 25bps, from 3.1% to 2.85%, implying a good chance of another two rate cuts to 2.75%. It’s another step in the right direction… and we continue to call for a move to 2.5%. The RBNZ has seen enough to cut again, and again, but not enough to do enough, in our view. We expect to see the OCR tracked lowered again in August towards 2.5%.
• The weakness in the economy is clear and demands more attention and less restriction. With all the risks offshore, think Trumpian tariffs, and the pain still felt onshore, there’s a good argument to be made for taking policy into stimulatory territory.

The RBNZ cut 25bps today. The cash rate sits at 3.25%. Were we surprised? Nope. Did we want more? Yes. There’s no doubt that the Kiwi economy needs support. The risks to the growth outlook are tilted to the downside. As was revealed last week, the Govt’s hands are tied (self-inflicted). So, we look to the RBNZ. In the current environment, with a future clouded by the tariff trade war, there’s more for the central bank to do to support the recovery.

Rightly so, the RBNZ is signalling more rate cuts. That’s the key takeaway from the May MPS. The OCR track was lowered from a flat lined bottom of 3.10% to a 2.85% bottom in March 2026. So now another 25bps cut to 3% is fully baked into the cake. And from there, there’s a 60% chance of another 25bps cut to 2.75%. Once again, we would love to have seen a bit more. We’re still of the view that a 2.5% cash rate is what the Kiwi economy needs. And an OCR track bottoming anywhere below 2.75% would have signalled what we had hoped to see.

But with each MPS, the terminal OCR has moved closer to our 2.5% view. Give them time, and they just might get there. But for now, such heightened uncertainty is making it harder for all policymakers to navigate. So, it’s not surprising to see the committee err on the side of caution. The fact the RBNZ “voted” 5-1, with one member voting for a pause to assess, throws some doubt on the timing of the next move, but not the direction. They are not on a “pre-set course”, and always data dependent. We think there’s enough for them to cut again in July, but they may wait until August to cut again. It depends… on what? Everything.

That seed of doubt caused a bit of a jolt in financial markets, especially short end interest rates. The pivotal 2-year swap rate rose 10bps, from 3.16% to 3.26%. It’s not a big move… but it was one Governor Christian Hawkesby pushed back on. The telling comment from Hawkesby, when asked about the market reaction, was his reference to the new OCR track matching market pricing prior to the announcement. The RBNZ’s OCR track matched market pricing of 2.85%. So they would not have expected much reaction at all.

Again, we want to reinforce the key message of today’s meeting is that the RBNZ is signalling more cuts.

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