The Reserve Bank of New Zealand (RBNZ) is expected to reduce the official cash rate (OCR) by 50 basis points to 3.75% on 19 February 2025, marking the third consecutive half-point cut. This anticipated move aims to address recessionary pressures and rising unemployment. The RBNZ has already lowered rates by a total of 125 basis points since August 2024 to stimulate economic activity.
Recent economic indicators depict a slowing economy. Inflation has moderated to 2.2%, within the RBNZ’s target range of 1% to 3%. Despite this, unemployment has risen to 5.1%, the highest level since September 2020.
Economists suggest that the upcoming rate cut may be the last of its magnitude, with future reductions likely to be more measured. ASB Chief Economist Nick Tuffley anticipates 25 basis point cuts in April and May, bringing the OCR to 3.25% by mid-2025. Similarly, ANZ forecasts a 25 basis point cut in April, resulting in a 3.5% OCR.
The manufacturing sector shows signs of recovery, with the Performance of Manufacturing Index rising to 51.4 in January, indicating expansion for the first time in nearly two years. However, global trade uncertainties, particularly related to recent U.S. tariff policies, pose potential risks to New Zealand’s export-driven economy.
