The Reserve Bank of New Zealand (RBNZ) cut interest rates today by 50 basis points to 4.25%. The decision was in line with economists' expectations. Despite this, the New Zealand dollar (NZD) has strengthened significantly since the decision and is now the strongest G10 currency.
The market's reaction is quite contrary to RBNZ's relatively dovish stance. Before the announcement, the market priced in nearly a 30% chance of a triple rate cut, or 75 basis points. This may have caused some surprise and contributed to the NZD's appreciation. On the other hand, most economists and the RBNZ's forecasts aligned with the published decision. For this reason, the scenario of a more significant easing was merely market speculation. Currently, the market prices a 71% chance of a double cut at the next RBNZ meeting on February 19, compared to nearly 65% before today's decision. By May 2025, the implied level of interest rates has not changed significantly and remains around 3.40%.
Start investing today or test a free demo
Create account Try a demo Download mobile app Download mobile appAnother piece of information that may have been perceived as slightly hawkish by the market was Governor Adrian Orr's comment during the press conference. Orr noted that he expects greater price volatility due to geopolitical reasons, indirectly referencing Donald Trump's trade policies.
Summary of the RBNZ decision:
- Headline and core inflation are close to the mid-point of the 1–3% target range; inflation expectations are aligned.
- Economic growth is below potential, with significant spare capacity and weak employment growth.
- Another OCR reduction is likely early next year in February if conditions remain favorable.
- Major economies (USA, China, Europe) show subdued growth with persistent geopolitical risks.
- The board sees no conflict between achieving inflation targets and maintaining financial stability.
- Growth is expected to rebound in 2025, driven by lower interest rates, but the pace remains uncertain.
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.
