Banks confident RBNZ easing bias remains intact
New Zealand’s major banks remain confident the Reserve Bank will resume easing in August, despite its widely expected decision to hold the official cash rate at 3.25%.
Economists from ASB, Westpac, Kiwibank, and ANZ said the central bank’s commentary maintained a clear dovish tone, reaffirming its bias toward further cuts.
RBNZ has cut the OCR by 225 basis points since early 2024 but opted to pause this month amid ongoing global uncertainty and a temporary spike in inflation.
ASB: RBNZ delivered a dovish hold
ASB senior economist Mark Smith (pictured upper left) called the decision a “Goldilocks hold,” noting the OCR sits in a zone that neither restrains nor overstimulates.
“With the 3.25% OCR in the ‘Goldilocks zone’ and annual CPI inflation within the 1-3% target range, our view was that there was a higher threshold for the RBNZ to deliver a further cut given the mixed run of events since the May MPS,” Smith said in an ASB economic note.
While a 25bp cut was considered, the record of the meeting confirmed a consensus to hold.
However, Smith said the easing bias remains intact and further cuts are still on the table.
“Given that the outlook was broadly consistent with the May MPS view, the RBNZ maintained an explicit easing bias…,” he said. “Our base case is that a cautious, data- and event-dependent RBNZ will cut the OCR by 25bps in August with the OCR ending the year at 3.0%.”
Kiwibank: “We would have cut”
Kiwibank chief economist Jarrod Kerr (pictured upper right) took a more proactive stance, arguing RBNZ should have moved this July.
“So, if it had been us today, we would have cut,” Kerr said in Kiwibank’s latest ThriveHQ insights. “And we would cut again in August. Because why wait when medium-term inflation remains contained?”
He acknowledged near-term inflation will lift, but said policymakers must look through short-term volatility.
“Food prices have reaccelerated; household energy costs are climbing… But a spike is still just a spike,” Kerr said.
He said the medium-term outlook is “skewed to the downside,” and noted signs of caution across households and businesses.
“There is significant spare capacity and a large negative output gap in the New Zealand economy. All of these factors are disinflationary,” Kerr said.
Westpac: August cut still the ‘best bet’
Westpac chief economist Kelly Eckhold (pictured lower left) described the hold as a “consensus decision” and said the tone of the RBNZ's communication signalled that an August rate cut remains highly likely.
“On balance… the 25bp cut in August looks like the best bet for now (perhaps a 70% probability),” Eckhold said in Westpac’s economic bulletin. “Hence, we are not changing our forecast for one final cut at the August MPS to 3%.”
Eckhold noted that the RBNZ still sees inflation returning to the 2% midpoint by early 2026 and said upcoming data – particularly Q2 CPI and labour market numbers – will be critical.
ANZ: Holding fire now clears way for more later
ANZ chief economist Sharon Zollner (pictured lower right) said RBNZ’s pause was expected and prudent, allowing the committee time to assess incoming data.
“We continue to expect that the RBNZ will cut the OCR by 25bp at the next Monetary Policy Statement in August, with more easing to come after that,” Zollner said in ANZ’s latest economic news.
She said inflation expectations and signs of economic momentum will guide the central bank’s next steps.
“Our view is that the Committee’s concerns on the inflation front will dissipate rather than intensify as the economy continues to recover but underperforms RBNZ expectations,” Zollner said.
Markets shrug off decision as focus turns to August
Markets showed little reaction to the hold, with swap rates and the NZD briefly moving before returning to pre-decision levels.
“The Kiwi currency wanted to go higher, it tried to go higher, but ended up slightly lower,” Kerr said. “It was a nice scenic trip to nowhere.”
Key data to watch before August 20 MPS
Economists agree that the following indicators will be pivotal in shaping the RBNZ’s August decision:
- Q2 CPI (July 21): Headline inflation expected to lift, driven by food and energy.
- Labour market data (Aug. 6): Unemployment seen rising to 5.3%.
- Inflation expectations survey (Aug. 7): Focus on five- and 10-year ahead measures.
- Business confidence and PMI updates: To gauge near-term growth signals.
- Export prices and global risks: Especially in light of US tariffs and geopolitical tension.
