RBNZ holds rates and signals potential for further easing ✂📣

• OCR remains at 3.25%; decision unanimous despite considering a 25 bp cut
• Inflation path: peak around 3% in mid-2025, declining to ~2% by early 2026
• Further cuts likely as inflation eases – August meeting will be crucial

The Reserve Bank of New Zealand (RBNZ) kept its Official Cash Rate (OCR) unchanged at 3.25%, ending a streak of six consecutive rate cuts. Policymakers judged that ample domestic spare capacity and weakening global demand will allow inflation to return to the 2% target by early 2026 — even though CPI may hover near the top of the 1–3% target band through mid-2025. Elevated export prices and prior fiscal stimulus are helping support a gradual recovery, though trade war uncertainty and rising long-term global yields weigh on the outlook.

The Monetary Policy Committee debated a 25 bp rate cut but unanimously opted to wait, citing the need for more data on economic activity, inflation, and tariffs. The tone of the statement was dovish: if medium-term inflation pressure continues to ease as projected, further easing is likely, with the next potential decision set for the August 20 Monetary Policy Statement (MPS). Nearly half of outstanding mortgages in New Zealand are due to reset at lower rates in the second half of 2025, which could loosen financial conditions even without an immediate OCR move.

Markets interpreted the decision as a pause before a cut, boosting expectations for rate divergence with Australia. The AUDNZD pair climbed from around 1.086 to 1.089–1.090, reaching a two-week high, as investors priced in a faster easing path from the RBNZ compared to the Reserve Bank of Australia. Diverging monetary policy paths, weak Chinese data, and renewed tariff threats from the U.S. are putting more pressure on the New Zealand dollar (NZD) than the Australian dollar (AUD).