The Reserve Bank of New Zealand (RBNZ) surprised the markets with a jumbo rate cut of 0.50% on Wednesday. This brought the benchmark interest rate to 2.5%, its lowest level since July 2022. The rate decision has sent the New Zealand Dollar to a 6-month low.
The markets had expected a modest 0.25% rate cut but the central bank once again showed that it can be aggressive, as it chopped rates by 0.50% three consecutive times in the second half of 2025.
RBNZ Statement: Growth Remains Weak
In its statement, the RBNZ expressed concern about weak economic growth, noting that house prices were flat and residential and business investment remained weak. Members said that “there are upside and downside risks to the inflation outlook”.
New Zealand’s inflation rates edged up to 2.7% in the second quarter, up from 2.5% in Q1, but remains comfortably with the central bank’s target of 1%-3%. With inflation under control, the RBNZ is focusing on the weak economy, and delivered some shock therapy in the form of a large rate cut in order to boost economic growth. The RBNZ is keeping a close eye on the health of the economy and there is a strong likelihood that the central bank will cut rates by a further 0.25% at the November meeting.
The central bank remains concerned about the global trade landscape and the uncertainty caused by US tariffs. The statement noted that “economic growth in New Zealand’s trading partners is proving resilient”, a critical factor for the export-reliant economy. New Zealand’s largest trading partner is China and if the US and China can end their trade war reach an agreement, it would be a huge win for New Zealand’s export sector and would greatly benefit the economy.
New Zealand Dollar Slides, Stock Market Edges Higher After RBNZ Announcement
It has been a rough day for the New Zealand Dollar, as the larger-than-expected rate cut has made the currency less attractive to investors. The NZD/USD currency pair declined as much as 1% earlier today before recovering about half of those losses. The Kiwi fell as low as 0.5737 in the Asian session, its lowest level since April. Currently, the New Zealand Dollar is trading at 0.5774, down 0.42% on the day.
The NZX 50, New Zealand’s main stock index, closed the day with slight gains. The index rose 37 points (0.27%), and closed at 13,568.
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