Rate cut unlikely as inflation pressures persist
Mortgage holders may need to wait longer for another cash rate cut from the Reserve Bank of New Zealand (RBNZ), according to trans-Tasman aggregator Finsure Group.
Finsure NZ country manager Jenny Campbell said a July rate cut was always going to be a tough call for the central bank.
“It was always going to be difficult for the RBNZ to cut the cash rate this month given inflation is within the target band and the job market remains weak,” Campbell said.
One more cut expected this year
Campbell still expects another rate reduction before the end of 2025, despite the Reserve Bank holding firm in July.
“There was a slight increase in the inflation rate from 2.2% to 2.5% in the most recent inflation data, which will no doubt have the board on edge, plus the added variable of a tumultuous global economy,” she said.
“Regardless of the decision, it still doesn’t change the fact the cash rate has dropped 2.25 percentage points in the last 12 months, and advisers should be constantly reviewing their client’s loan to ensure they are on a competitive deal.”
Since August 2024, RBNZ has lowered the cash rate by 225 basis points following one of the most aggressive tightening cycles in its history – a move that supported the economy’s rebound from recession and sparked renewed activity in the housing market.
RBNZ seen holding rates
A majority of economists surveyed by Reuters expect RBNZ to keep the official cash rate (OCR) at 3.25% in its July 9 monetary policy review.
The median forecast shows just one more 25 basis point cut for the remainder of 2025, down from two cuts predicted in the previous Reuters poll conducted in May.
“Several members viewed it appropriate for the RBNZ to pause cutting the OCR in July,” said senior economist Ting Huang.
Most members see the OCR remaining between 2.75% and 3.25%, with limited scope for further cuts.
August cut still in play
With second-quarter inflation data due on July 21, the central bank is expected to wait before making further moves.
Wesley Tanuvasa, economist at ASB, said the decision to pause in July reflects the need to reassess inflation expectations before the next policy meeting.
“So, pause now, see the inflation expectation data. From there, that can help them navigate whether August is a cut or not. Right now, we’ve priced in a cut for August,” Tanuvasa said.
Banks and economists broadly aligned
All major New Zealand banks – ANZ, ASB, BNZ, Kiwibank, and Westpac – expect no change to the OCR this month.
According to the Reuters poll, 19 of 27 economists forecast RBNZ will hold in July, while eight expect a 25bp cut. Looking ahead, 16 of 22 economists anticipate a cut by the end of September.
Inflation is forecast to average 2.8% this quarter, easing to 2.5% in 2025 and 2.1% in 2026 – keeping it within the RBNZ’s 1-3% target range.
Meanwhile, New Zealand’s GDP is projected to grow by 1% in 2025 and 2.4% in 2026.
