The Reserve Bank has cut the Official Cash Rate (OCR) by 25 basis points to 3.5% in its Monetary Policy Review. 

The move was widely expected by economists and is the lowest the OCR has been at since October 2022. 

The recently announced increases in global trade barriers weaken the outlook for global economic activity, the RBNZ said. 

On balance, these developments create downside risks to the outlook for economic activity and inflation in New Zealand. 

“Having consumer price inflation close to the middle of its target band puts the Committee in the best position to respond to developments. 

“As the extent and effect of tariff policies become clearer, the Committee has scope to lower the OCR further as appropriate. 

“Future policy decisions will be determined by the outlook for inflationary pressure over the medium term.” 

The Reserve Bank said the recent decline in the New Zealand dollar would help to cushion the immediate effect of decreased global demand for New Zealand exports. 

“Lower oil prices will also support domestic consumption and production.” 

Economists say it is too early to know what the inflationary fallout from the United States’ tariff policy will be. 

On that basis, Acting Governor Christian Hawkesby and the Monetary Policy Committee (MPC) will likely stick to their already well-signalled path. 

“Given the RBNZ in February clearly signalled confidence that they’d be cutting 25bp[s] this month, the burden of proof is on finding reasons not to deliver,” ANZ chief economist Sharon Zollner said. 

“We don’t think the threshold for either a pause or a larger cut has been cleared.” 

The decision should be a straightforward one despite being made in an “increasingly less straightforward world”, ASB chief economist Nick Tuffley said. 

Domestic developments had been largely in line with the RBNZ’s outlook, he said. 

“But it’s hardly a bed of roses. [US President] Donald Trump’s tariff bad medicine, including this week’s ‘reciprocal tariffs’, have created much more uncertainty about the path of New Zealand growth and inflation.” 

Some economists have suggested the tariff hit to global growth may mean the RBNZ needs to cut the OCR below its current projected end point at 3%. 

But more guidance is expected on the future interest rate path in May when the RBNZ delivers its next full Monetary Policy Statement. 

Liam Dann is business editor-at-large for the New Zealand Herald. He is a senior writer and columnist and also presents and produces videos and podcasts. He joined the Herald in 2003.