Fresh Beginnings, Lower Interest Rates, And A Message We Can Get Behind. Let The Economy Recover

• The RBNZ kept the cash rate on hold at 2.25%. And the messaging was crystal clear. Let the economy recover. Keep settings accommodative. And if all goes well, look to hike rates at the end of this year, or early next. It’s a big if. But overall, it’s a message that we can get behind.
• In more global news, the U.S. Supreme Court struck down President Trump’s wide sweeping reciprocal tariffs over the weekend. In a scramble to plug the bullet holes in his trade agenda, Trump quickly rolled out a global 10% tariff on all goods. But that figure barely hit the page before being scratched out and bumped up to 15%.
• Our COTW is all about Kiwi summer spending. Our Kiwibank card data showed spending into the silly season was solid in December. But less so in January as the number of transactions slipped compared to last year. Kiwi also continue to pull back on retail apparel, but encouragingly they’re still opening their wallets for all things around the home.

Here’s our take on current events

Don’t you just love fresh beginnings? Meeting for the first time in 2026, the RBNZ felt like a whole new central bank last week. New leadership can do that. (See our full review here).

As expected, the cash rate was left unchanged at 2.25% under a unanimous decision. New Governor, Anna Breman, made her mark with a simple, well delivered, statement and OCR track. Something which in the past, as recently as November, has not been well executed.

The RBNZ called time on the easing cycle, lifting the OCR track. The next move in monetary policy is up. And the timing of that move has been brought forward. Ending the year at 2.38%, the OCR track implies a good chance of the first hike happening at the end of this year. However, as Governor Breman said in the press conference, such a move is not entirely priced in. It’s not a done deal. Ultimately, we think the Kiwi economy will need a little more time to be fully mended and as such remain of the view rate hikes kicking off in early 2027. But we’re on the same page. The economy must recover, before they hike.

The Kiwi economic recovery is in the “early stages” as the RBNZ put it. There’s a lot left to do. There’s a lot of time that’s needed to heal.

Importantly, the MPC committee, like us, are confident that inflation will fall to the 2 percent midpoint over the next 12 months. Spare capacity in the economy, modest wage growth, and core inflation within the target band suggest as much.

Overall, the RBNZ delivered a commentary that was easily absorbed by market traders, and economists. The reaction in wholesale rates and FX was textbook. Why? Because markets didn’t move much… and the moves that did occur, were in the right direction. Breman’s take on the world and Kiwi economy failed to meet overzealous calls for rate hikes (just because the Aussies are doing it). Leading into last week’s decision, wholesale rates had glided lower. Positioning was unwound, and the market better balanced. Overeager calls for rate hikes were tempered. And that got wholesale rates lower, by ~5-9bps. That’s a win. And thoughts of a stronger spike in the Kiwi dollar have vanished, at least for now.

In other news, just as things were starting to feel a little quieter out of the US, we were hit with some big developments over the weekend. The U.S. Supreme Court struck down President Trump’s widesweeping reciprocal tariffs, ruling that he had indeed exceeded his authority and misused emergency powers.

Trying to hold his trade agenda together, Trump quickly announced a global 10% tariff on all foreign goods, which a day later, was scribbled out and lifted to 15%. These new baseline tariffs are legal under the 1974 Trade Act, but only for a maximum of 150 days. After that, congressional approval will be needed for anything to remain in place.

From a New Zealand perspective, the blanket 15% is no different from what we were already facing. And as far as we understand at this stage, our beef, kiwifruit, and other key agri exports still appear to be exempt under earlier agreements. Though admittedly there’s still a fair bit of murkiness around the details. Prime Minister, Christopher Luxon, at least seemed to think such exemptions remained when discussing the matter on the Mike Hosking show this morning.

Charts of the Week: Summer spending slows into 2026.

We typically see spending ramp up into the summer holidays. But our Kiwibank electronic card data showed this effect was less pronounced this time around. The silly season kicked off on a good note with the number of transactions in December up 0.4% on last year’s levels. But it seems consumer spending got hit with a bad new year’s hangover in January. The number of transactions in January dropped 2.7% below the overall 2025 monthly average. And compared to last January, transaction volumes were down 2.3%.

The total amount of dollars spent however still rose in both December (+8.6%) and January (+3.7%) when compared to last year. So Kiwi are tapping, swiping, and inserting their cards less, but spending more each time. With the lift in transactions over December, the sharp rise in values likely reflects broader spending strength with bigger trolleys and larger Santa sacks this past Christmas. But January tells a different story. The softer value gain, paired with falling volumes, points to the all than more familiar culprit: higher prices. Inflation has picked up over the past year, and many households are still feeling the squeeze after several years of tight budgets, elevated consumer prices, and expensive credit.

Even though interest rates have fallen significantly over the last year, household budgets remain under pressure. Elevated utility costs are continuing to weigh on disposable incomes. And as households have had to spend more on essentials, less has been spent on fun discretionary items. Spending on retail apparel particularly remains in persistent decline. However there are encouraging signs emerging within housing-related spend. Especially in the home-reno space with Kiwi clearly enjoying a summer of DIY. Farmers too became big spenders in December. However, hospitality services were mixed this summer with Kiwi preferring restaurants over cafés. Meanwhile Kiwi travel demand is still broadly in a downtrend.

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