Trump's tariffs reinforce case for deeper easing
BNZ economists are standing firm on their long-held forecast that the Reserve Bank of New Zealand (RBNZ) will eventually lower the official cash rate (OCR) to 2.75%, a more aggressive easing stance than most other market projections.
Ahead of the RBNZ’s upcoming OCR review on Wednesday, where a 25-basis-point cut to 3.50% is widely anticipated, BNZ’s head of research Stephen Toplis is urging the central bank to maintain a “steady hand on the tiller” and follow through on its February guidance.
The RBNZ’s most recent forecasts in February signalled a potential low of between 3.0% and 3.25% for the OCR, but BNZ economists say that in light of escalating global risks—particularly US President Donald Trump’s sweeping tariff moves—the lower bound could be deeper.
Toplis, writing in BNZ’s latest Economy Watch report, titled “Trump’s Terrifying Tariffs!”, said, “We’ve been picking a 2.75% low in the cash rate for almost two years now… and we feel our fears have been vindicated.”
He described the latest global developments as a “big headwind to growth,” suggesting the uncertain fallout from trade tensions could weigh heavily on New Zealand’s economy, even if inflation risks remain two-sided.
“Domestic financial markets have certainly taken on board the downside risk in finally pushing the expected OCR track sub-3.0%,” Toplis said. “And it’s hard to believe the RBNZ will have any greater clue as to what is around the corner than do we or anyone else.”
Toplis said the central bank should acknowledge the uncertainty and may opt to keep its post-cut guidance open-ended. “We would not be surprised if its musings about where to next were left wide open… it would be acknowledging that it would use the time between now and the May Monetary Policy Statement to try to make sense of what is going on.”
He added that policymakers must now be “more reactive than proactive,” as forecasting reliability is challenged by volatile global conditions. “Understanding risk will take precedence over a fraught forecasting process… unintended consequences and unexpected reactions will come thick and fast.”
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