As expected, the Reserve Bank of New Zealand (RBNZ) kept interest rates unchanged at 3.25% in their July meeting.
The Monetary Policy Committee reached consensus to hold rates steady after deliberating between a 25 basis point cut to 3.0% and maintaining the current level, reflecting central bank’s cautious approach amid heightened global policy uncertainty.
Key Takeaways:
- RBNZ kept OCR on hold at 3.25% – Committee chose patience over immediate action, marking a pause in their easing cycle
- Inflation trajectory unchanged – Annual CPI expected to rise toward the top of the 1-3% target band in mid-2025 before returning to around 2% by early 2026
- Global trade concerns paramount – Tariff uncertainties and protectionist policies creating significant headwinds for economic outlook
- Domestic recovery mixed – Stronger Q1 GDP growth offset by weaker high-frequency indicators in April-May
- Future easing signaled – Committee expects to lower rates further if medium-term inflation pressures continue to ease as projected
- Financial conditions easing – Mortgage rates declining despite rate pause, with close to half of mortgage stock due to reprice in coming quarters
As indicated in their official statement, this decision comes against a backdrop of divergent economic signals. While aggregate GDP growth over the December and March quarters exceeded expectations, driven by improved household consumption and business investment, more recent high-frequency indicators suggest economic momentum may be waning.
Link to official RBNZ Monetary Policy Statement for July 2025
Annual consumer price inflation increased to 2.5% in the March quarter, with the central bank expecting further increases in the June and September quarters. This near-term inflation pickup, attributed to food price pressures and elevated administered price increases, represents a key concern for some committee members who worry about more persistent price-setting behaviors.
In addition, the committee’s deliberations were heavily influenced by global trade policy developments, with significant uncertainty surrounding tariff policies and their potential impact on the New Zealand economy.
The committee also highlighted risks from potential financial market volatility and increased bond yields stemming from large economic policy shifts overseas and concerns about sovereign risk. Ongoing conflicts in the Middle East and Ukraine add further uncertainty to global energy price trajectories.
Lastly, the central bank emphasized that future rate decisions will depend on additional data regarding the speed of New Zealand’s economic recovery, the persistence of inflation, and the ultimate impacts of global trade policies.
Market Reaction:
New Zealand Dollar vs. Major Currencies: 5-min
Overlay of NZD vs. Major Currencies Chart by TradingView
The New Zealand dollar exhibited an initial response to the rate decision, before profit-taking ultimately took over and erased the post-event gains and more.
The chart above shows the Kiwi strengthening 0.22% against the Japanese yen, 0.18% versus the Swiss franc, and 0.13% against the euro in the immediate aftermath of the announcement. However, the currency weakened against the Australian dollar (-0.05%) and U.S. dollar (-0.07%) in the aftermath of the event, as broader financial sentiment appeared to take over.
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