New Zealand Dollar Rallies Despite Latest RBNZ Rate Cut

February 20, 2025 - Written by Frank Davies

STORY LINK New Zealand Dollar Rallies Despite Latest RBNZ Rate Cut

The New Zealand dollar spiked lower after the latest Reserve Bank of New Zealand rate cut before rallying on expectations that the rate cycle would end this year while aggressive rate cuts would help underpin the economy.

The Pound to New Zealand dollar exchange rate (GBP/NZD) spiked to 2-week highs just above 2.22 before a retreat to near 2.20.

According to ING; “NZD is benefitting from seeing the end of the easing cycle sooner than previously thought.”

The bank has an end-2025 GBP/NZD forecast of 2.16.

Danske Bank expects GBP/NZD will peak at 2.23 on a 3-month view before a retreat to 2.17 on a 12-month view.

The Reserve Bank of New Zealand (RBNZ) cut interest rates by 50 basis points to 3.75% at the latest policy meeting, in line with consensus forecasts.

The bank expects further cuts over the next few months and commented; “If economic conditions continue to evolve as projected, the Committee has scope to lower the OCR further through 2025.”

Governor Orr added; “We are looking at lowering the official cash rate a little bit quicker than what we projected back in November. We have our projection of the OCR being around 3% by year end."

Kiwibank chief economist Jarrod Kerr commented; “The main message from today's Monetary Policy Statement is the lowering (again) of the Official Cash Rate track. The RBNZ are signalling more cuts, sooner.”

The bank also expressed concerns surrounding growth dynamics and commented; "Geopolitics, including uncertainty about trade barriers, is likely to weaken global growth."

In this context, it sees a faster pace of rate cuts as helping to protect the economy.

Although the bank is expecting to cut interest rates faster this year, it has raised the longer-term projections with rates expected to settle around 3.1% from early 2026.

ING commented; “The indications are that this was the last 50bp reduction, and NZD is benefitting from seeing the end of the easing cycle sooner than previously thought. Early aggressive easing by the RBNZ suggests New Zealand can be better prepared to face trade headwinds.

Pressure on the RBNZ will, however, intensify if the economy deteriorates further.

According to MUFG; “If more economic slack continues to open up than the RBNZ is expecting it will increase pressure to lower rates below neutral in the coming years.”

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TAGS: Pound New Zealand Dollar Forecasts