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The Reserve Bank says it isn’t biased towards lowering the Official Cash Rate further after cutting it to 3.25% in a 5-1 vote on Wednesday

Economy / news
The Reserve Bank says it isn’t biased towards lowering the Official Cash Rate further after cutting it to 3.25% in a 5-1 vote on Wednesday
Reserve Bank Governor Christian Hawkesby at a Parliamentary hearing
Reserve Bank Governor Christian Hawkesby answers questions at Parliament in 2025

Is this the end of the interest rate easing cycle?

Reserve Bank (RBNZ) Governor Christian Hawkesby says policymakers are not necessarily leaning towards cutting the Official Cash Rate (OCR) further, after lowering it to 3.25% on Wednesday. 

RBNZ projections in the May Monetary Policy Statement show the benchmark interest rate could be reduced to 2.85% under its central economic forecast, but Hawkesby downplayed the likelihood of this happening.

“We also acknowledge that there is a high degree of uncertainty. That is just one central projection. There are many other paths the economy could take,” the Governor said.

“The confidence ranges around that central projection are wide enough for us to not have a bias either way in terms of what the next step is at the next meeting.”

The news surprised traders, who pushed two-year government bond yields up 15 basis points to 3.46%. The kiwi dollar also jumped half a percent before mostly easing back.

Dave McLiesh, managing director of digital savings platform Wedge Money, said the market was reacting to Hawkesby’s hawkish comments during the press conference.

“The Monetary Policy Committee (MPC) thinks they could very well be done cutting the Official Cash Rate for this cycle,” he said.

Central bankers always retain some level of optionality, but Hawkesby’s comments were amplified by the split committee decision. One member voted to hold the OCR at 3.5% to assess whether uncertainty was easing inflation pressures. The other five voted for the cut.

The only other split vote was in May 2023, when the committee disagreed about whether or not to take the final step up to 5.5%. Hawkesby said on Wednesday that it wasn’t uncommon to have a vote “at this point in the economic cycle”. 

“If you look at the last time we voted, it was two years ago, when the Official Cash Rate was near its peak. Turning points, or inflection points, are the times that we are more likely to vote than not,” he said. 

This suggests the committee felt it was at, or at least nearing, the end of the easing cycle. 

There was no discussion of a 50 basis-point move, which some economists had advocated for ahead of the decision. Hawkesby said traders shouldn’t assume interest rates will continue to fall.

“We’re in a good position such that we can respond to developments as they occur, as opposed to being pre-programmed or pre-set to make any particular move,” he said. 

This is despite the central bank’s forecast predicting slower economic growth than previously expected, with a weak recovery in the residential construction and retail sectors.

Floor for mortgage rates?

Stephen Toplis, head of research at BNZ, said this growth outlook was pessimistic and made it unlikely the OCR would be cut much further, unless downside risks materialised.

“Financial markets judged today’s statement as being hawkish relative to expectations and are in the midst of trying to price out any chance of the cash rate falling below 3.00%,” he said.

“Currently mortgage rates are priced off the expectation that the RBNZ would cut rates to near 2.75%. This is no longer the case.”

BNZ cut all its fixed home loan rates on Tuesday in anticipation of Wednesday’s decision, despite wholesale swap rates holding steady.

Karen Silk, an assistant RBNZ governor, said the May decision had already been “baked into mortgage rates” and that any further declines would come from competition between banks. 

She had expected fixed-term rates to settle between 5% and 5.5% at the end of this cycle, and they were already “slightly lower” than that.

"I think that does reflect the increased competition that we're seeing in the market, at the moment, in a low credit growth environment,” she said. 

But not everyone believes the easing cycle has ended. Sharon Zollner, chief economist at ANZ, said she still thinks the RBNZ has a couple more cuts up its sleeve.

“With the OCR now well off its peak and closer to neutral the RBNZ doesn’t need to pin its colours to any particular mast until the picture is clearer,” she said.  

“Yes, some measures of inflation expectations have lifted recently, but capacity indicators continue to indicate that the output gap is negative and the economy in a disinflationary state. If you’re winning the war, there’s no need to overreact to minor provocations."

Jarrod Kerr, chief economist at Kiwibank, also pushed back on the idea the central bank was signalling the end of the easing cycle.

“The RBNZ is signalling more rate cuts. That’s the key takeaway from the May MPS. The OCR track was lowered from a flat-lined bottom of 3.10% to a 2.85% bottom in March 2026”. 

“The fact [they] ‘voted’ 5-1, with one member voting for a pause to assess, throws some doubt on the timing of the next move, but not the direction.”

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30 Comments

IMHO they want to signal that there will be no run away recovery based on cheap credit into speculative asset markets, any recovery has to be based on sound investment in productivity enhancing investments.    For a decent recovery we probably need fiscal investment, but NAct seem to either not acknowledge this or or are unwilling to borrow to try and boast a recovery.

I think they have a second term already but voters will not wait in recession for two terms and then vote for more of it, next term they will have to admit that fiscal spending is required to exit the doom and gloom, We are almost 5 years in now, by the end of there 2nd term, trying to buy a third, we will be 9 years into a lost decade.

 

 

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any recovery has to be based on sound investment in productivity enhancing investments.   

The productivity gain is relative to the interest rate though.

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ah yes but the willingness to borrow is based on the belief that profit will occur.....

 

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Which you'd be less inclined to do with a fiscally restrained customer base?

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That bought and paid for Kiwibank promoter - roosters earnings, are obviously tied to reinflating the already unaffordable NZ housing market.  Constantly barking at the moon and passing cars, for much lower OCR........while the housing market prices deflate and hiss out air.

He is trying to salvage his banks, gone bad/underwater loans, that they made since 2020.  Their loan default rate must be really rocketing now????

This NZ housing crash will continue.....unless we have mortgage rates at 2.5% again.
- So the NZ Housing Crash just will roll on into 2026/2027, with retail rates anywhere near 4 to 5%.

Buyers just need to knock -20 to -30% off the current asking, to prevent future Negative equity

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Oneroof 

https://www.oneroof.co.nz/news/latest-news/cant-be-bothered-with-them-a…

lots of cheap unmaintained shit coming online, probably at the WORST point in the cycle to sell cheap unmaintained shit, but they bought a long time ago and just want out (not good re what level they will accept vs recent buyers)

 

https://www.oneroof.co.nz/news/latest-news/tony-alexander-ocr-drops-aga…

TA - its a buyers market

words of the week - Capital Loss   going to not go down well at next summers BBQs

as in fark my investment pooperty is showing a Capital Loss

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Get off TAs ass...

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TA has a history of talking out of it. It's surprising to see a dose of realism from him in the last wee while.

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He's made so many bad calls over recent years he's got no choice but to tone it down and appeal to an audience like yourself. Oneroof has another 'economist' now for the spruiking...

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Yvil | 28th May 25, 2:14pm

Listen to Yvil when it comes to interest rates, Nifty.  Rates are going lower than most expect.  Fix for 6 months!

Cheif economist of interest.co.nz comment section has made their call... let's not forget.

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See my comment below Nifty. Let's revisit in August after Q2 GDP & unemployment figures are out

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I don't buy it.  The RBNZ is relying on old Q1 data, they don't realise how much the economy has slowed since April.  They will only get the Q2  data in August, and only then will they change their tune to "Oh the economy is in worse shape than we expected, we need to cut the OCR more"

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I don't buy it.

Signalling by reserve banks is as much of a weapon as the actual rates themselves. At this point any press release by them about future rates, is worthless.

We are also at a stage where traditional economics is becoming redundant, further making forecasting very problematic using existing tools. Even Covid shows us these guys don't understand the nature of 21st century global supply, just in time shipping, and what happens when you turn much of it off, simultaneously.

The last 70 years has been fairly lineal, basic maths. From here, there's a myriad of non monetary factors that'll turn modelling on its head.

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yes some of us saw this in Oct 21.....   its called a crash

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I saw it in March 2020.

I guess the rest of you needed more data.

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😂🤣 unbelievable 

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We were always paying for COVID.

The credit just deferred the timing.

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Yep, jobs data today was a shocker. The idea that job growth will surge into the positive in the next few months is pure hopium. Again.

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No one should expect that over winter.

It's definitely getting spicier out there. But it's also super split, entities and individuals with money seem to be spending it more freely than 24 months ago. They won't make up for the masses who have their wallets fairly well shut though.

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The jobs data is seasonally adjusted. The forecasts RBNZ published today look wildly optimistic. 

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A better chart would also include their historic forecasts.

And then one showing the OCR vs their own forecast

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Yes RBNZ forcast are a almost as bad as Tony Specuzanders......nar his utterances have been worse.

But to be fair to the ole Comb,  since the property bubble had begun to burst and the shtf literally, he has bit more bearish and realistic as to how deep/long this NZ property crash will go. 

HIS PROPERTY SEMINARS WILL BE GHOSTTOWNS, WITH NEGATIVE EQUITY SOAKED TUMBLEWEDS, ROLLING THROUGH......

 

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Good on you for realising this thread is not about Property and for being able to write about something else… (sarcasm)

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The OCR is overrated

a) overrated as an effective tool to reduce inflation

b) overrated as a news story

c) overrated impact on housing as pretty much all housing loans are on fixed which taps into a completely different market

d) overrated by the govt clutching at straws for a good news economy story

e) but quite real in its impact on term desposit interest rates dropping though

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True but bond markets do take a reasonable amount of guidance from where the OCR and RB intentions are likely to track. Fixed interest isn't all about swap rates.

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They can hold rates but the evidence that the economy will recover with the status quo interest rate settings simply isn't there.

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What you mean is the average punter has no disposable income until there mortgage drops to go out and spend, and no inclination as housing price is dropping or stagnant ...   Hint : they do not want the Ponzi to restart 

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Are interest rates a leading or lagging indicator? Interest rates fall in response to a weakening economy and they rise in response to a growing economy.

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Interest rates are irrelevant in an environment of cascading defaults...somewhat akin to floating exchange rates, they are a fair weather friend that can rapidly lose any meaning.

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Depends if deflationary or stagflationary forces at play.

And yet even then the current conditions are the result of past monetary policy so in turn you could argue interest rates are both simultaneously leading and lagging indicators.

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