Most of the NZIER shadow board recommends a 25 basis point cash rate cut by the RBNZ.
by VT Markets
/
Aug 17, 2025
The NZIER shadow board recommends a 25 basis point interest rate cut in this week’s meeting. The market shows a 95% chance of this happening.
Last week, a Reuters poll found that 28 out of 30 economists believe the Reserve Bank of New Zealand will lower the cash rate to 3% on August 20. This matches earlier expectations for the bank’s upcoming meeting.
Current Market Expectations
As of August 17, 2025, the market expects the Reserve Bank of New Zealand to keep interest rates steady this week. Still, there’s about a 15% chance of a rate cut indicated by overnight index swaps. This uncertainty could create opportunities for traders.
In August 2015, the situation was different; the market was nearly 95% sure of a rate cut, which the RBNZ delivered. Today, the economic outlook is not favorable for reducing rates.
Recent CPI data for the second quarter of 2025 shows inflation at 3.2%, above the RBNZ’s target range of 1-3%. This ongoing inflation makes it hard for the RBNZ to justify a rate cut. The return to the 2% target has been slower than expected this year.
Additionally, the job market is tight, with July data showing an unemployment rate of just 4.1%. A strong job market allows the RBNZ to maintain higher rates longer to control inflation, unlike previous times when rising unemployment forced the bank to act.
Trade Opportunities
For derivatives traders, this means preparing for a hawkish hold from the RBNZ. Consider selling front-end interest rate futures or receiving fixed on longer-dated swaps, betting that the market will remove the remaining chance of a near-term cut. The risk comes if the bank’s statement is unexpectedly soft, but recent data suggests this is unlikely.
In the coming weeks, pay attention to the RBNZ’s forward guidance. If the bank indicates that rates will remain steady into 2026, it could lead to a reshaping of the yield curve. This would favor trades that benefit from short-term rates staying where they are.
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by VT Markets
Aug 17, 2025
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