The Reserve Bank of New Zealand has lowered the cash rate by 0.25% to 3.00%. They predict the Official Cash Rate (OCR) will be 2.71% by December 2025 and 2.59% by September 2026, expecting inflation to hit target levels by mid-2026. The bank noted there’s unused capacity in the economy and less pressure from domestic inflation. However, they warned that cautious spending from households and businesses might slow growth. Still, rate cuts might help encourage recovery.

Vote Results And Arguments

The minutes show a vote of 4 to 2 in favor of the 0.25% rate cut. Supporters argued that there are balanced risks and falling inflation. Some members were worried about the uncertain global policy environment. Inflation is expected to rise to 3% in the September quarter, possibly exceeding this. The committee discussed keeping the OCR unchanged, a 0.25% cut, or a larger cut of 0.50%, which could encourage more spending and investment. The Reserve Bank’s rate cut was widely expected. The important takeaway is that more cuts are likely, with the bank forecasting the rate will drop to 2.71% by the end of this year. This indicates a trend of easing monetary policy. This cautious stance is likely to exert downward pressure on the New Zealand dollar. Our Q2 GDP report revealed minimal growth at just 0.1%, providing little support for the currency. Meanwhile, since the U.S. Federal Reserve has kept its rates steady, the growing interest rate gap makes betting against the NZD/USD pair appealing.

Strategies And Projections

For those trading interest rates, now might be a good time to prepare for more OCR cuts. The RBNZ’s forecast of 2.71% by December is more aggressive than the current predictions from the Overnight Index Swap market. The fact that two committee members preferred a larger cut today suggests strong readiness to act if economic data worsens. This kind of environment resembles the easing cycle from 2015 to 2016, where following the central bank’s lead proved to be the right long-term approach. Any unexpected strength in the Kiwi in the coming weeks should be seen as a chance to start or increase short positions. With the bank expecting a lower trade-weighted NZD, the overall trend is downward. The differing views within the committee add uncertainty about how quickly future cuts will happen, which could cause volatility. Options strategies may help prepare for significant market moves around key data releases, such as the upcoming quarterly inflation report. The RBNZ mentioned the risk of cautious behavior from households and businesses, which might prompt them to cut rates more rapidly than planned. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now