The Reserve Bank of New Zealand is expected to lower interest rates by 25 basis points on Wednesday. Rates were already cut to 3% in August, and more reductions might be on the way based on a softer approach. Recent data reveals that New Zealand’s GDP dropped by 0.9% in the second quarter. This decline has increased the output gap, keeping growth below last year’s figures. Inflation signs are also easing, even though the annual rate remains high.

Interest Rate Forecast

The main interest rate is likely to decrease to 2.75%, a prediction widely held by markets and analysts, according to a Bloomberg survey. This change probably won’t have a big impact on the currency. Christian Hawkesby will lead his final meeting in November, with Anna Breman taking over as the new governor on December 1. The Reserve Bank of New Zealand is set to reduce its key interest rate to 2.75% tomorrow, which aligns with expectations. This decision responds to weak economic data, including the 0.9% GDP contraction and the recent Q3 inflation report showing a drop to 4.1%. Since the market has anticipated this rate cut, we do not expect a strong reaction from the New Zealand dollar. Moving forward, we should watch for any surprises, as these can create opportunities in short-term options. The current implied volatility is low, considering there’s a slight chance the bank might opt for a more aggressive 50 basis point cut or choose to hold rates steady. A strategy that benefits from significant unexpected moves, regardless of direction, could be helpful for positioning ahead of the RBNZ’s post-meeting announcement.

Potential Future Rate Cuts

We anticipate that the bank will indicate more rate cuts may be necessary before the end of the year. This perspective is backed by weakening global conditions, particularly the ongoing slowdown in manufacturing in China, New Zealand’s main export market. Reflecting on the 2019 easing cycle, we recall that the RBNZ’s forward guidance had a more lasting impact on the currency than the rate cuts themselves. The growing interest rate gap between New Zealand and the United States will likely keep applying downward pressure on the kiwi. With the US Federal Reserve maintaining its policy rate around 4.5%, the appeal of US dollars is increasing compared to New Zealand dollars. However, any comments regarding policy in 2026 should be approached carefully, as the new governor starting on December 1 may change the bank’s future direction. Create your live VT Markets account and start trading now.

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