Tariff turmoil may briefly support Kiwi borrowing conditions
New Reserve Bank (RBNZ) analysis suggests the latest US tariff shock could deliver a short window of softer inflation and lower mortgage rates for New Zealand borrowers. Over time, however, the modelling points to higher import costs and renewed inflation pressures.
For mortgage advisers, the research points to a scenario where borrowing capacity may improve modestly in the near term, even as global trade tensions rise.
The analytical note models the impact of large US tariff increases on the New Zealand economy using the global G‑Cubed trade model.
In the baseline scenario, the effective US tariff rate on imports rises sharply, triggering weaker demand for New Zealand exports and diverting trade flows. At the same time, a stronger New Zealand dollar and cheaper imported goods generate a short‑term disinflationary impulse.
RBNZ says that "disinflationary pressure induces lower interest rates, supporting the domestic economy”, leaving real GDP slightly higher than otherwise despite softer exports.
The latest bank forecasts also point to a modest upswing, with ASB and Westpac expecting December‑quarter GDP growth of around 0.3–0.4% and a second consecutive rise in per‑capita output, helped by stronger exports, services, and tourism.
New Zealand exports to the United States are estimated to be about 13% lower in the first year after tariffs are introduced, recovering over time to around 6% below the no‑tariff path by 2040 as trade routes adjust.
Exporters also face more competition in other markets as goods previously destined for the US are diverted towards New Zealand’s key export destinations.
Short‑run disinflation, longer‑run inflation risk
Trade diversion, a firmer exchange rate, and weaker global growth push down import prices in the early years, lowering headline inflation and allowing the policy rate to fall modestly below its counterfactual path.
Over time, however, RBNZ warns that global supply chains become less efficient as firms adjust to higher tariff barriers. This gradually lifts import prices, with the note finding that “over time however, global supply chains become more inefficient contributing towards higher import prices, creating some inflationary pressure by around 2030.”
For mortgage advisers, the message is that any rate relief driven by the tariff shock is likely to be temporary.
Read the RBNZ analytical note here.
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