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RBNZ Likely to Pause Rate Cuts This Week; Economic Outlook Faces Pressures

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New Zealand’s Reserve Bank (RBNZ) is expected to keep the Official Cash Rate (OCR) unchanged at 3.25% on July 10, pausing its streak of six consecutive rate cuts since August 2024. Market expectations for a cut this week stand at just 15%, though most forecasts anticipate 25–50 basis points of easing by November. ANZ Bank holds a differing view, assigning a 40% probability of a cut and projecting cumulative 75 basis points of reductions by February 2025, bringing the OCR to 2.5%.

The economy sends mixed signals: Upward pressures include Q1 GDP growth of 0.8%—double the RBNZ’s forecast—and 4.4% year-on-year food price inflation. Downside risks persist, however, with weak retail spending (per capita consumption 6% below 2023 peaks), rising unemployment, stagnant house prices, and a contracting manufacturing sector. BNZ notes the economy "needs more support" and maintains its forecast for the OCR to bottom at 2.75%.

External headwinds loom: The Trump administration’s plans to impose 20–30% tariffs on multiple nations face a July 9 negotiation deadline. Moody’s downgraded 2025 GDP forecasts for 20 out of 25 Asia-Pacific economies, lowering regional growth from 4.0% to 3.3% amid prolonged trade uncertainty. The RBNZ warned in May that "rising global tariffs would delay New Zealand’s economic recovery."

With no Monetary Policy Statement (MPS) accompanying this decision, markets will focus on verbal guidance. A focus on inflation risks could delay easing expectations, while concerns over fragile recovery may hint at potential action in August. Westpac notes that divergent messaging will directly influence wholesale and mortgage rates.