RBNZ expected to resume interest rate easing path
- The Reserve Bank of New Zealand is set to lower the key interest rate to 3% on Wednesday.
- The focus will be on the RBNZ’s OCR projection and Governor Hawkesby’s comments.
- The New Zealand Dollar braces for intense volatility on the RBNZ policy announcements.
The Reserve Bank of New Zealand (RBNZ) is widely expected to lower the Official Cash Rate (OCR) from 3.25% to 3% when the board members conclude the August monetary policy meeting on Wednesday.
The decision will be announced at 02:00 GMT, accompanied by the Monetary Policy Statement (MPS). RBNZ Governor Christian Hawkesby’s press conference will follow at 03:00 GMT.
The New Zealand Dollar (NZD) remains exposed to big moves in immediate reaction to the central bank’s policy announcements.
What to expect from the RBNZ interest rate decision?
The RBNZ is set to resume its easing cycle this week, after having paused a series of six consecutive interest rate cuts in the July meeting.
Such a move would come as no surprise, especially after the RBNZ July Monetary Policy Review (MPR) said, “Committee expects to lower the official cash rate further, broadly consistent with the projection outlined in May.”
Back then, the MPR noted that the future path of the official cash rate would depend on additional data regarding the pace of New Zealand's economic recovery, the persistence of inflation, and the impacts of tariffs. Since then, the Consumer Price Index (CPI) rose 0.5% in the second quarter from the prior quarter and was up an annual 2.7%, Statistics New Zealand said. Both figures were a tad slower than the forecasts.
However, the RBNZ’s Sectoral Factor Model Inflation gauge fell from 2.9% to 2.8% YoY for the second quarter.
New Zealand’s Unemployment Rate climbed to 5.2% in the June 2025 quarter, up from 5.1% in the previous quarter, while other details of the jobs report showed a 0.1% QoQ decline in hiring as expected.
Weakening inflationary pressures and labor market conditions justify the upcoming rate cut, but the main focus will be on whether the central bank keeps the door open for further rate cuts amid signs of a pick-up in forward-looking measures of activity.
With a rate cut fully baked, markets are not expecting any big changes to the RBNZ’s inflation and OCR forecasts, compared with the May projections.
Analysts at TD Securities said: “We are not expecting the Bank to make a strong case for taking the OCR below 3% but advocate a data-dependent easing bias. We stick to a 3% terminal rate forecast but acknowledge the risks are skewed to the downside.”
How will the RBNZ interest rate decision impact the New Zealand Dollar?
The NZD/USD pair is on the road to recovery from weekly troughs in the lead-up to the RBNZ showdown.
If the central bank hints that it is nearing the end of the rate-cutting cycle amid an improving economic outlook, it could boost the NZD, providing extra legs to the recent upswing.
However, any downward revisions to the inflation and/or OCR forecasts could bode ill for the Kiwi Dollar, dragging the pair back toward the monthly lows.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for NZD/USD and explains:
“From a near-term technical perspective, risks remain skewed to the downside for the Kiwi pair so long as the 14-day Relative Strength Index (RSI) stays below the midline. Adding credence to the bearish outlook, the 21-day Simple Moving Average (SMA) is on the verge of crossing below the 100-day SMA, teasing a potential Bear Cross.”
“Buyers need acceptance above the 21-day SMA and the 100-day SMA confluence near 0.5950 to negate the bearish bias in the immediate term. Further up, the 0.6000 round level could be tested after the NZD/USD pair surpasses the 50-day SMA at 0.5988. The 0.6050 psychological barrier will be next on tap. Conversely, a sustained break below the static support near 0.5900 will pave the way for a steep drop toward the August 5 low of 0.5881, below which the key 200-day SMA support at 0.5833 will be exposed,” Dhwani adds.
RBNZ FAQs
The Reserve Bank of New Zealand (RBNZ) is the country’s central bank. Its economic objectives are achieving and maintaining price stability – achieved when inflation, measured by the Consumer Price Index (CPI), falls within the band of between 1% and 3% – and supporting maximum sustainable employment.
The Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Committee (MPC) decides the appropriate level of the Official Cash Rate (OCR) according to its objectives. When inflation is above target, the bank will attempt to tame it by raising its key OCR, making it more expensive for households and businesses to borrow money and thus cooling the economy. Higher interest rates are generally positive for the New Zealand Dollar (NZD) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken NZD.
Employment is important for the Reserve Bank of New Zealand (RBNZ) because a tight labor market can fuel inflation. The RBNZ’s goal of “maximum sustainable employment” is defined as the highest use of labor resources that can be sustained over time without creating an acceleration in inflation. “When employment is at its maximum sustainable level, there will be low and stable inflation. However, if employment is above the maximum sustainable level for too long, it will eventually cause prices to rise more and more quickly, requiring the MPC to raise interest rates to keep inflation under control,” the bank says.
In extreme situations, the Reserve Bank of New Zealand (RBNZ) can enact a monetary policy tool called Quantitative Easing. QE is the process by which the RBNZ prints local currency and uses it to buy assets – usually government or corporate bonds – from banks and other financial institutions with the aim to increase the domestic money supply and spur economic activity. QE usually results in a weaker New Zealand Dollar (NZD). QE is a last resort when simply lowering interest rates is unlikely to achieve the objectives of the central bank. The RBNZ used it during the Covid-19 pandemic.